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What is Contractor’s Tools & Equipment Coverage?

If you are a contractor, there is a specific type of insurance that can protect the tools that you use for your business. This policy is designed to provide coverage for a contractor’s equipment, tools, and machinery, wherever you may take them.

You might think that your commercial property policy will cover any damage to or loss of your tools. This is true, with a big caveat—your tools and equipment are only covered while in a building specifically listed on your insurance policy. 

This is an issue for most contractors because they bring tools and equipment from jobsite to jobsite. You need your insurance policy to cover the tools from damage or theft, regardless of location. A contractor’s tools and equipment policy does exactly that.

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Where does a contractor’s tools and equipment policy provide coverage?

The policy will cover your tools and equipment while they are on your commercial property, as well as while they are at job sites, temporary locations, and in transit. This coverage is vital because most damage to tools occurs while on the jobsite, and most thefts occur during transport.

Construction tools are often targeted by thieves because they sell for large sums of money, are in high demand, and rarely have distinguishing features. In other words, there’s a high likelihood that you will have to deal with your tools being stolen at some point in the life of your business. While replacing a single drill may not be that difficult, you could be left in a financial bind if a large number of tools are stolen from the back of your truck—and this could impact your ability to get back to the job site.

Additionally, tools get damaged regularly. It is no secret that construction sites come with a risk for injury and damaged property. If you set a tool down, someone could easily step on it or drop a heavy object on it, rendering it useless. Contractor’s tools and equipment coverage ensures that those tools are restored back to you, at no cost.

What equipment is covered?

All of your tools will be covered, as well as any equipment you own, including large pieces of machinery (bulldozers, skidsteers, construction equipment, etc).

This policy also includes newly purchased equipment. While you need to get that new item listed under the policy as soon as possible, you are not expected to call your insurance broker from inside the store in order to ensure it is covered for the transit back to your property. You do have a short grace period, but the sooner you call your broker to have new equipment added to the policy, the better you can ensure it is fully covered.

Additionally, some policies include property you rent, lease, or borrow, AND property you rent, lease, or loan to others. (Please note this inclusion is not part of all contractors tools policies, so inform your insurance agent if you need it.) For example, if you rent an excavator as part of your construction project and it is damaged while in your care, your contractor's tools coverage will handle the cost of repair or replacement. You would similarly be covered if you loan your excavator to a colleague and it is damaged while in their care.

How can I find a policy that includes coverage for leased or borrowed tools?

This will normally be added as a supplement to a basic contractor’s tools policy. You will most likely have different insurance limits for leased/borrowed tools, versus the tools you own and use yourself. Plus, the portion of your policy that provides coverage to leased/borrowed tools may have different requirements from your general policy.

For example, if you rent a piece of equipment, your policy may only cover that equipment at the jobsite and not while it is in transit. It is important to know the specifics of your policy, so you can ensure you are complying with any rental terms.

Can I cover my employee’s tools?

Under a contractor’s tools and equipment policy, you will have coverage for any equipment you own and equipment in your care, custody, and control. Your “care, custody, and control” is legal terminology, but if you have legally obtained the tool and are using the tool, it is most likely in your care, custody, and control.

Ultimately, your coverage is limited to the items on the equipment schedule. The equipment schedule is a list you provide to the insurance company of all tools and equipment you want to include on the policy. In other words, it isa list of everything the insurance company will pay for if it gets lost or damaged.

Is every tool and type of equipment insurable?

No. While the policy does provide coverage for most tools and equipment, there are certain things it will not cover, such as:

  1. Aircraft or watercraft(boats, planes, drones, etc.)
  2. Contraband (any and all illegal items)
  3. Property rented or leased to others (unless it is otherwise included above)
  4. Property loaned to others (unless it is otherwise included above)
  5. Underground mining operations (anything damaged or stolen while underground)
  6. Vehicles designed for highway use
  7. Waterborne property

Please pay special attention to #6: vehicles designed for highway use. This includes both tractors and trailers. While trailers are often used to carry tools, they need to be insured on your commercial auto policy rather than on your contractor’s tools policy. Similarly, you may consider tractors as part of your equipment, but they would also need an auto policy rather than coverage under your contractor’s tools policy.

The Bottom Line

As a contractor, your tools and equipment can be very expensive to replace if damaged or stolen. Don’t let their loss prevent you from taking jobs—make sure you find a contractor’s tools policy that covers everything you need. To make sure you are adequately covered, give us a call and one of our experts will discuss your individual insurance needs. If you would like to get started without speaking to someone, click on “get a quote” to complete the process online.

Austin Landes, CIC

About The Author: Austin Landes, CIC

Austin is an experienced Commercial Risk Advisor specializing in property & casualty risk management for religious institutions, real estate, construction, and manufacturing.

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