Contractors Insurance
The construction industry is one of the major contributors to the United States economy. Hundreds of thousands of companies employ millions of people across the country. With that many workers regularly in and around heavy machinery and dangerous operations, problems are bound to arise every now and then. Unfortunately, “problems” in the construction industry usually result in either: A) injuries, B) costing a lot of money, or C) both.
It is for this reason that the insurance and construction industries have a lot of overlap. Regardless if you are a one man handyman or a multi-billion dollar enterprise, you are still legally required to be insured.
Contractors insurance is not one specific type of coverage, but rather several different types of insurance that a contractor may need, depending on the scope of their business operations. It is customizable to each business depending on the size of the company, number of employees, their scope of operations, and other factors that make companies unique. This is so that you are covered for what you need to be covered for and don’t have to pay for something you don’t need.
What is Contractors Insurance?
Contractors Insurance is an overarching term referring to the collection of insurance policies that contractors often have. These are usually bundled together and called a Commercial Package or Business Owners Package, or BOP for short. Common coverages that contractors have are general liability, commercial property, business auto, inland marine, bonds, commercial umbrella, and workers compensation. Generally speaking, smaller businesses don’t always need all of these coverages. You can find a brief description of each coverage below to help you determine which coverages are necessary for your business.
Who Needs Contractors Insurance?
In the State of Washington, there are several insurance coverages that are legally required for all contractors. These coverages are general liability, workers compensation, and commercial auto. Insurance is a heavily regulated industry and is designed to protect consumers. For that reason, these coverages are required because they protect others from damages that may arise out of your business operations. Having insurance guarantees that you will be able to pay for damages that you may be liable for.
Let’s look at an example. Let’s say you are a residential plumber. You improperly installed a fitting which caused a pipe to flood someone’s basement, resulting in $30,000 in damages that you are now responsible for. Most small businesses do not have the liquid assets to be able to pay for something of this size out of pocket in a timely manner. Situations like this is why general liability insurance is required - to protect the consumer.
For a similar reason, workers compensation is required to protect your own employees from injuries at work. Washington State is one of four monopolistic states. This means that workers compensation is only available through the state (Washington State Department of Labor & Industries) instead of being able to go through a private insurer. The other monopolistic states are Ohio, Wyoming, and North Dakota. If you are interested in learning more about the pros and cons of monopolistic states, click here.
Commercial auto is another required coverage that contractors need. A common question is “do I need a commercial auto policy if I am using my personal vehicle?”, to which the answer is yes, you still need a commercial auto policy. Most personal auto policies exclude any business use, so if you are driving your personal pickup for work and rear end someone, you are responsible for paying out of pocket for the damages.
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How Much Does it Cost?
Like all types of insurance, there is no one-size-fits-all answer when it comes to the cost of contractors insurance. There is a complex process that insurance companies go through to evaluate the risk of each company and charge appropriately.
During the quoting process, your agent will ask you a variety of questions about your business. These questions are things like how long you’ve been in business, where you are located, how many employees, annual revenue, description of operations and past claims history to name a few. Next, your agent will submit your answers to different insurance companies who will then accept or deny the application and provide what premium that they will charge for coverage.
Contractor insurance can range from a few hundred dollars a year to hundreds of thousands (or more) a year depending on the size of the business and what kind of work is being done. Businesses that have a higher risk line of work, such as a roofer, are going to be more expensive than a lower risk operation, such a lawn care business.
Claims history also has a heavy impact on the cost of insurance. Claims history typically goes back 3-5 years. Insurance companies usually look at the claims frequency (how often you are filing claims) as well as the claim amount (how much is paid out for each claim).
Commercial auto is generally the most expensive type of coverage due to the daily risk of getting in an accident or hitting something and causing property damage. For a rough ballpark of what it will cost, averages are typically $2000-2500 a year per vehicle for the current market. This is just a rough estimate, and rates are impacted based on driving history, claims history, and other factors. As a whole, insurance rates are way up across the board due to a variety of influences.
Contractors Insurance Coverages
General Liability
General liability insurance covers damages to others caused by you. This entails both property damage as well as bodily injury.
Example: A company is preparing the foundation for a new building. The crane operator misjudges the distance to the adjacent property and accidentally swings a steel beam through the wall of the neighbor’s building.
Commercial Property
Commercial property insurance covers your physical location as well as the contents inside. The contents, or “stuff”, inside your building are known as business personal property, or BPP for short. This entails anything in your building that is not permanently fixed to the structure. The common way to determine if something is BPP is to think, “if I turned the building upside down, would it fall out?”. If the answer is yes, it is BPP. If the answer is no, it is part of the structure.
Commercial Auto
Commercial auto insurance covers your vehicles and drivers. Depending on how you use your vehicles there are different coverage options available, ranging from narrow to broad. Personal auto policies exclude business use, therefore if you are using a personal vehicle for work you need to have a commercial auto policy to ensure that you are covered.
Inland Marine
Inland marine insurance covers property that is in transit or away from your insured premises. Inland marine coverage is how contractors insure their tools and equipment while they are on jobsites. Commercial property policies generally exclude anything that is over 100 feet from the insured premises (your building or construction yard). Because of this, anything that you bring to a job site is not covered unless you have inland marine coverage. Tractors, bobcats, excavators, generators, and other forms of heavy equipment are all insured by inland marine policies.
Bonds
While it is not a legal requirement that every contractor carries a bond, most jobsites require that contractors carry certain bonds before they are allowed to start work. Bonds are a guarantee that the contractor will follow through on their contractual obligations. There are different types of bonds available such as performance bonds, license bonds, and bid bonds.
Commercial Umbrella
Commercial umbrellas provide additional coverage when the limits of your underlying policy have been exhausted. Due to the current cost of goods being so high, it is recommended that contractors carry a commercial umbrella policy. This is because things are more expensive to replace and repair so coverage limits are easier than ever to hit. Depending on the situation and the policy, umbrellas may cover additional things that your normal policy does not.
Types of Contractors Narrows Insurance Currently Insures
- Electrical Contractors
- Commercial General Contractors
- Residential Home Builders & General Contractors
- Utility Contractors
- HVAC Contractors & Dealers
- Remodel Contractors
- Framing Contractors
- Plumbing Contractors
- Roofing Contractors
- Landscaping Contractors
- Drywall Contractors
- Excavation Contractors
- Alarm System & Security Contractors
- Cable & Telecommunication Contractors
To Conclude
Contractors do extremely important work all over the country. Their job usually involves dangerous operations with heavy equipment, tools, and the potential for things to go drastically wrong. Due to the high risk work that contractors do, there is significant exposure for people to get hurt or property to be damaged. For this reason, contractors should carry a variety of different insurance coverages to not only protect themselves, but others as well.
The coverages they have to have are liability, property, and workers compensation. Contractors should also have inland marine and commercial umbrella coverages. These coverages expand protection by increasing limits and offering off-site coverage for things like tools and equipment.
If you are still unsure of what coverages you need for your business, please reach out to Narrows Insurance and one of our agents will be happy to explain the coverages in detail as well as answer any specific questions you might have.
Informational statements regarding insurance coverage are for general description purposes only. These statements do not amend, modify or supplement any insurance policy. Consult the actual policy or your agent for details regarding terms, conditions, coverage, exclusions, products, services and programs which may be available to you. Your eligibility for particular products and services is subject to the final determination of underwriting qualifications and acceptance by the insurance underwriting company providing such products or services. This website does not make any representations that coverage does or does not exist for any particular claim or loss, or type of claim or loss, under any policy. Whether coverage exists or does not exist for any particular claim or loss under any policy depends on the facts and circumstances involved in the claim or loss and all applicable policy wording.