Overview
This essential reading for construction business owners delves into why general liability insurance is indispensable for any construction business. It covers the basics of what this insurance entails, the diverse risks in construction that necessitate such coverage, and the legal and financial implications of being insured. This article is tailored to empower construction business owners with the knowledge to safeguard their operations and secure their company’s future.
Introduction
The construction industry houses over 753,000 employers, has over 8 million employees and generates at least $2.1 trillion annually. But despite the strength of this industry, injury claims are becoming a primary loss driver in many states. This births the necessity of insurance covers like general liability insurance.
The bottom line is, you must protect your construction business from the inevitability of injuries and damages, and construction liability insurance safeguards are the key to protecting your business against legal defenses, liability claims, and damage costs resulting from these cases.
In essence, general liability insurance is your foundation for risk management. Nonetheless, to understand why General Liability Insurance is non-negotiable for construction companies, you must first understand the risks (the ones you are protecting yourself from) in the construction industry.
Risks in the Construction Industry
There is a fragility inherent in construction work that demands General contractor liability insurance. The risks are many, too:
We have Physical Injuries and Fatalities
Falls from Heights: A leading cause of injury in the construction sector, accounting for about one-third of all fatalities in the industry. Workers are often required to work on scaffolding, ladders, or high buildings without adequate fall protection.
Electrocution: Exposed wires, unfinished electrical systems, and power lines pose significant risks, especially in unfinished buildings. In fact, electrocution is one of the “fatal four” types of accidents that happen in the construction industry, and it leads to about 9% of employee deaths.
Slips, Trips, and Falls: Construction sites are often cluttered with materials and equipment, leading to tripping hazards. Uneven surfaces, scattered tools, or wet conditions can also lead to such injuries.
There is Property Damage to Consider
Equipment-Related Accidents: These include accidents involving heavy machinery such as cranes, bulldozers, and forklifts. Because of the use of heavy equipment in construction, the rate of deaths resulting from equipment-related accidents is about 26% in the construction industry. Besides, accidental machinery operation damage can affect the construction site and neighboring areas. Also, theft of equipment or materials from construction sites can lead to significant financial losses.
Don’t Forget Third Party Injuries or Damages
Struck-by and Caught-between Hazards: Workers can be struck by moving vehicles or equipment or caught between equipment and immovable structures.
Non-Worker Injuries: Individuals visiting or passing by a construction site can be injured, leading to liability claims.
What of Professional Liability Errors?
Design and Planning Errors: Mistakes in design or planning can lead to structural failures or the need for costly corrections.
Project Delays: Delays due to management or planning errors can lead to financial losses for clients.
And Environmental Risks?
Pollution: Construction activities can lead to pollution, potentially harming the environment and leading to lawsuits.
Hazardous Materials: Mishandling of materials like asbestos or lead can result in contamination and health risks.
Then, there are Legal and Contractual Liabilities
Non-Compliance: Failing to comply with safety regulations or building codes can result in legal action.
Contract Disputes: Disagreements over project scope, quality, or timelines can lead to litigation.
The Impact of These Risks Can Make or Break Your Construction Business
Already, you can see that one impact of the risks in the construction industry is the death of your workers. And in cases where death doesn’t occur, many workers are left disabled and out of work for long periods.
As for your construction business, you face workers who might feel unsafe, increased workers’ compensation claims, higher insurance premiums, and potential lawsuits. Additionally, accidents can cause project delays, property damage, and a tarnished reputation, which can have long-term effects on a company’s business prospects and financial health.
That is:
You are consistently facing the risk of incurring high costs of accidents and damages because injuries and property damage are imminent in construction. The lawsuits, medical bills, and repair costs can significantly immobilize your business because they are expensive.
For instance, the average cost of a slip-and-fall accident is around $20,000. And if you have Liability insurance for construction, frequently facing claims will inadvertently increase your insurance premiums, adding to your operational costs.
Companies with frequent claims may see a 10-30% increase in insurance premiums. Additionally, employee morale will lower, putting your business at risk of a high turnover rate. Remember that a poor safety record can make it challenging to attract skilled labor, which is crucial in the construction industry.
75% of workers prefer to work with employers with a low accident rate. And suppose your company’s reputation is damaged. In that case, clients lose trust in your construction firm because you frequently encounter accidents or legal issues, leading to loss of business and difficulty securing new contracts.
In worst-case scenarios, you might be forced to divert your resources to cater to the legal issues of injury or damage claims. Planning errors and project delays lead to cost overruns and penalties.
In fact, failure to meet contractual obligations due to project delays or quality issues can strain relationships with clients and partners. If found violating safety regulations, you could face a fine that exceeds $13,000 per violation.
You want long-term business viability?
You need adequate mitigation strategies to counter the effects of the continued exposure to risk your construction company faces. This underscores the importance of comprehensive risk management strategies, which, in this case, is adopting general liability insurance.
What Risks Does General Liability Insurance Cover?
General Liability Insurance covers a range of risks commonly encountered in the construction industry. These include:
Third-Party Bodily Injury
If someone who isn’t an employee, like a client or visitor, gets injured at the construction site, general liability insurance can cover their medical expenses. For instance, the policy would cover medical treatment costs if a visitor trips over construction materials and breaks an ankle.
Third-Party Property Damage
Given the heavy machinery and materials used in construction, the risk of accidental damage to surrounding properties is high. This insurance for construction covers the cost of repairing or replacing third-party property damaged due to construction activities. For example, the insurance would cover the repair costs if a construction crew accidentally damages a nearby vehicle or building.
Personal and Advertising Injury
Contractor general liability insurance includes protection against claims of libel, slander, or copyright infringement. For example, if a construction company is accused of using another company’s advertising material without permission, this coverage can help with legal defense and any resulting settlements. In a competitive business landscape, such claims, even if unfounded, can be costly to defend against.
Legal Defense Costs
Legal proceedings can be expensive, and having construction liability insurance to cover these costs can be financially lifesaving for a business. General liability insurance typically covers legal defense costs if your construction company is sued over a covered risk. This can include attorney fees, court costs, and any settlements or judgments.
Products-Completed Operations
Construction projects can have latent defects that become apparent only after completion. This liability insurance for construction covers property damage or injuries caused by completed construction projects. For example, if a flaw in a completed building leads to property damage or injury, the policy would cover the associated claims.
Contractor General Liability Insurance
Specific to construction, General contractor liability insurance covers liabilities arising from construction-related activities, including accidents and injuries that occur on-site. The dynamic and often hazardous nature of construction sites makes this coverage a core aspect of risk management in the industry.
What will General Liability Insurance Not Cover?
The areas that general liability insurance typically does not cover in the construction industry include:
Employee Injuries and Workers’ Compensation
General liability insurance does not cover injuries to your employees. These are typically covered by workers’ compensation insurance, which is a separate policy that construction companies need to carry.
Professional Errors (Professional Liability)
General liability insurance does not cover mistakes or failures in professional services, such as design flaws or engineering errors. These require professional liability insurance, sometimes called errors and omissions (E&O).
Property Damage to Own Equipment or Tools
General liability insurance typically does not cover damage to your property, such as construction equipment or tools. Commercial property insurance or equipment floater policies usually cover this type of damage. Making separate coverage for these assets essential.
Auto-Related Claims
Construction companies need appropriate auto insurance coverage due to the frequent use of vehicles to transport materials and workers. So, automobile accidents involving vehicles owned by the company are not covered under general liability insurance. These require a separate commercial auto insurance policy.
Intentional Acts
Insurance protects against unforeseen accidents and negligence, not deliberate harm or illegal activities. That said, general liability insurance does not cover damages or injuries that result from intentional acts or misconduct.
Contractual Liabilities
Liabilities assumed under specific contracts, particularly those beyond general liability, might not be covered. Careful review of contracts and additional insurance endorsements may be necessary to ensure adequate coverage.
Pollution
Environmental damage or pollution caused by construction activities is typically not covered under a standard general liability policy. Pollution liability coverage is often required for this.
General liability insurance has limitations, so construction companies should assess their specific risks and consider additional insurance policies to protect against potential liabilities fully. This comprehensive approach to insurance ensures that all aspects of a construction business are adequately safeguarded.
The Big Question
If general liability insurance cannot cover these risks, why is it a non-negotiable for construction businesses? Well, general liability insurance is non-negotiable for construction businesses because:
It Offers a Broad Coverage for Common Construction Risks
Frequent occurrences on construction sites, like third-party bodily injuries and property damage, can result in significant financial liabilities. Construction liability insurance offers versatile coverage for these day-to-day construction operations, especially concerning interactions with clients, subcontractors, and the public.
It Offers Financial Stability and Security
Construction involves high-cost projects where accidents can lead to expensive lawsuits. General liability insurance protects the financial stability of a business by covering these potential costs. And in the event of a claim, having insurance ensures that a company can continue its operations without significant financial disruption.
It Makes your Business Trustworthy
In a competitive industry, being insured can be a differentiator, positioning the company favorably in the market. That is, carrying general liability insurance is often seen as a mark of professionalism and reliability. It reassures clients and partners that the company is responsible and prepared for unforeseen events.
It is a Catalyst for Growth and Expansion
Typically, insurance coverage is essential for businesses looking to expand their operations, take on larger projects, or enter new markets. Additionally, prospective investors or partners seek insurance proof to protect their investments against potential liabilities. General contractor liability insurance offers this assurance.
It is a Legal Requirement – and a Client Expectation
In many regions, having general liability insurance is a legal requirement for construction companies. Non-compliance can lead to fines, legal penalties, or a halt in operations. Many clients and project owners also require proof of general liability insurance before awarding contracts. Liability insurance for construction is often a prerequisite for bidding on projects.
So, unlike specialized insurance, general contractor liability insurance provides broad coverage, a necessity given the unpredictable nature of construction work. It’s a cornerstone of risk management in the construction industry because it allows for essential coverage for frequent risks, meets legal and contractual requirements, ensures financial stability, enhances reputation, and supports business growth.
Granted, it will not cover all the risks you face in the construction industry. However, it covers the fundamental aspects of construction operations, making it an indispensable tool for any construction business.
How Does General Liability Insurance Work?
At its core, general liability insurance is about safeguarding a business’s financial health against lawsuits or claims from third-party bodily injuries, property damage, and personal and advertising injuries. So, how does it work?
Step 1:
Businesses first assess their risk exposure, which varies depending on their operations’ nature, size, and location. Based on this assessment, a company purchases a general liability insurance policy. The level of risk determines premiums, the type of business, and the coverage limits.
Step 2:
The business then chooses the scope of coverage. Typically, general liability insurance should cover medical costs and legal fees if a third party (like a customer or client) is injured in a business-related incident. It should also cover the repair or replacement costs if the business accidentally damages a third party’s property. This includes protection against claims of libel, slander, and copyright infringement.
Step 3:
Then, there is the reporting and claim process. When an incident occurs (e.g., a customer slips and falls at a business premise), the business reports it to its insurance company. The insurance company investigates the claim to determine if the policy covers the incident. If the claim is valid, the insurer pays for the covered expenses, including legal defense, settlements, or judgments, up to the policy’s limit.
Other Things to Consider
Policy Limits and Deductibles
General liability policies have coverage limits per occurrence or aggregate over the policy term. Higher limits usually mean higher premiums. Some policies may have a deductible, the amount the insured must pay out-of-pocket before the insurance coverage applies. Ensure your broker takes you through your general liability insurance policy to determine your limits and deductibles.
Risk Management
Many insurers also offer risk management support, advising businesses on best practices to minimize the likelihood of claims. Ask your broker to get you an insurance provider with this support system.
Renewal and Adjustments
Businesses typically review and renew their policies annually, adjusting coverage as they grow or change. Work with a broker who will ensure you update your policy based on your business needs, market trends, and demands.
Compliance and Contracts
Businesses are often required by law or contractual agreements to carry general liability insurance. This is particularly true in the construction industry. So, if anything, get general liability insurance to stay compliant. Non-compliance can lead to legal consequences, including fines and penalties, criminal charges, breaches of contract, resulting in legal disputes, financial penalties, or loss of the contract, and the suspension or revocation of a contractor’s license.
Financial Implications of General Liability Insurance
The premiums for general contractor liability insurance can be substantial, depending on the size and scope of the construction business. However, these costs must be weighed against the potential expenses of legal claims, which can be staggering.
Customize General Liability Insurance for Construction Needs
A ‘one-size-fits-all’ approach to insurance isn’t feasible. Instead, get customizable policies that allow you to tailor your coverage based on your specific project needs. This may include adjusting coverage limits, opting for additional riders, or excluding certain coverages that are not relevant.
Choose the Right Insurance Provider
Look at several insurance providers to compare their coverage options, premiums, and exclusions. Don’t just focus on price; the extent and quality of coverage are paramount. Prefer providers that have experience and expertise in the construction industry. They will have a better understanding of your specific needs and challenges. Look at their coverage options, company reputation, claim process, and customer service. If unsure, ask for referrals from people you trust or check case studies, online reviews, and testimonials.
What are the General Liability Insurance Requirements?
General liability insurance requirements vary depending on several factors, such as the type of business, location, size of the company, and specific industry regulations. Nonetheless, the common aspects of general liability insurance requirements are as follows:
Minimum Coverage Limits
Different industries have varying levels of risk, which dictate the minimum coverage limits. For instance, construction or manufacturing businesses typically require higher coverage limits due to the higher risk associated with their operations. Some states or local jurisdictions may have specific minimum coverage requirements for businesses to operate legally. Check with your broker to determine the coverage limits in your state and for your business.
Contractual Obligations
Many clients, especially in commercial or government sectors, require businesses to carry a certain amount of general liability insurance as a condition of contracts. Landlords also often need tenants, including commercial companies, to maintain general liability insurance as part of the lease agreement.
Specific Risk Coverage
The risks associated with a business’s operations can dictate additional coverage needs. For example, businesses with high public foot traffic might need higher general liability insurance coverage limits for bodily injury. And companies providing professional services might need to supplement their general liability insurance with professional liability insurance (errors and omissions coverage).
Additional Insured Endorsements or Adjustments for Growth
As a business grows or changes, its insurance needs may also change. Companies often need to add clients, partners, or subcontractors as additional insured on their policies, especially in the construction industry. Regularly reviewing and adjusting coverage ensures ongoing compliance and adequate protection.
Legal and Regulatory Compliance
Certain industries have specific regulatory requirements for liability insurance. For example, construction companies might be required to carry additional types of liability insurance like builders’ risk or contractors’ liability insurance. Consult with an insurance broker who understands your industry to meet these requirements.
What Type of Contractors Need This Type of Insurance for Construction?
One of the most important insurances for construction tips is to have a robust risk management strategy. That starts with understanding what type of insurance every contractor needs. And contractors who particularly need general liability insurance include:
General Contractors
Since they oversee entire construction projects, general contractors are responsible for all construction phases. This high level of responsibility means greater risk exposure, making general liability insurance essential.
Subcontractors
Subcontractors specialize in specific aspects of construction projects, such as electrical, plumbing, or roofing work. Therefore, they must often carry liability insurance to work under a general contractor. If they don’t have their Insurance for construction, get a subcontractor policy for your business.
Building Contractors
Building contractors are involved in building new structures, renovations, and remodels. So, like general contractors, the high risk of property damage and injuries on job sites necessitates robust liability insurance for construction coverage.
Specialty Contractors
They specialize in construction services like HVAC, landscaping, or painting. The specific risks associated with their trade require tailored liability insurance coverage.
Independent Contractors
Even though they operate independently, often on smaller projects or as part of larger teams, the personal liability risk and potential contractual requirements from clients necessitate individual general contractor liability insurance coverage.
Home Improvement Contractors
They specialize in home improvement and repair projects, but the direct interaction with homeowners and the potential for property damage make contractor general liability insurance critical.
Commercial Construction Contractors
Commercial Construction Contractors focus on commercial projects like office buildings, retail spaces, and industrial structures. These are large-scale projects that come with increased risks and higher insurance requirements. Therefore, General Liability Insurance is non-negotiable.
Civil Contractors
These contractors work on infrastructure projects like roads, bridges, and public works. Involvement in public projects often comes with stringent insurance requirements, which include the need for General Liability Insurance.
Conclusively, General liability insurance is a crucial requirement for contractors across various specialties in the construction industry. Given the diverse nature of construction projects and the varying risks associated with different types of contracting work, tailored insurance coverage is often necessary to ensure adequate protection.
Conclusion: Invest in Peace of Mind
Unpredictability is quickly becoming the new norm in business today. So, take the proactive step now to safeguard your business. Consult with a trusted insurance provider to tailor a policy that fits your unique needs and ensure you are not just meeting legal requirements but are also positioned to handle whatever challenges your construction projects might face.
Remember, investing in general liability insurance is investing in your business’s resilience and future. Contact an insurance broker today and take a decisive step towards securing your business tomorrow.
Your business is your legacy. Protect it with the proper coverage.
FAQs
Q1: What exactly does general liability insurance cover for construction companies?
General liability insurance primarily covers claims of third-party bodily injuries, property damage, and personal and advertising injuries related to your construction business.
Q2: Is general liability insurance legally required for construction
businesses?
While requirements can vary by state and project, many jurisdictions require construction companies to have some form of general liability insurance. It is also often a contractual requirement by clients.
Q3: How much does general liability insurance cost for a construction
company?
The cost varies based on factors like the company’s size, the types of projects undertaken, and the company’s claims history. Getting a personalized quote from an insurance provider for accurate pricing is best.
Q4: Can a construction company operate without general liability
insurance?
Technically, a company can operate without it, which exposes the business to significant financial risks from lawsuits or claims. Additionally, not having insurance might violate legal requirements or client contracts.
Q5: How is the coverage limit for a policy determined?
Coverage limits are based on the level of risk your business might face. Factors like the nature of your construction projects and your company’s assets are considered. It’s crucial to choose a limit that adequately protects your business.
Secure Your Business’s Future Today
As a construction business owner, the well-being of your business, employees, and clients hinges on your daily decisions. With the myriad of risks inherent in the construction industry, securing comprehensive general liability insurance isn’t just a precaution—it’s a necessity. Contact us for the best general liability insurance cover for your construction business.
