How Does General Liability Work for Contractors?

22
May 2018
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You use a wide variety of tools to build your construction business. Of all the tools at your disposal, from heavy equipment to hand tools, the one that could help you the most is general liability insurance.

You’re in a high-risk industry. Accidents can, and will, happen. When they do, this foundational policy protects your business against financial losses.

How General Liability Works for You

Contractor general liability insurance covers your business against third-party claims and lawsuits for injuries or property damage.

Designed to help pay for court costs, settlement fees, medical bills, and work time lost, general liability is there to cover you for a wide range of mishaps that could occur as a result of your construction business activities..

Imagine a residential remodel client popping in to check on your work. He’s so excited to see what you’re up to that he trips over - and tangles up with - your heavy duty A-frame ladder. He hits the ground. Hard. An ambulance ride and hospital overnight stay later, you’re still wondering what happened and whether or not you’re going to be facing a lawsuit.

Walking by as you’re doing brickwork at the properties edge, your client’s neighbor trips over a tool you’ve left on the sidewalk. Same result.

You watch in horror as your employee loses control of your work truck as he’s backing it through a client’s side gate. He takes out the gate and part of the neighbor’s backyard fence. And their gazebo. What is that going to cost you?

General liability is designed to cover costs for workplace accidents like these so that you can keep your hard earned money where you need it: in your bank account.

So how does a GL policy work, exactly?

Your general liability policy will outline the maximum amount your insurance company will pay against a liability claim for third-party injuries or damages. Your policy will also outline your deductible, the amount you pay before your insurance company begins paying out for claims.

These two factors, your policy limit and your deductible, will both factor into the annual premium cost of your policy. You’ll want to choose your limits and deductibles carefully.

Here’s why:

Let’s say you have a policy limit of $500,000 with a $500 deductible. You get sued for $450,000 for medical costs for a third-party workplace injury, plus an additional $100,000 in legal fees, your total claim amount is $650,000. You’ll be responsible for paying your deductible plus the extra $150,000.

But in this same scenario, if you had a $1M limit to your policy and a $1,000 deductible, you’d be in a much better place. Sure, you have to pay more out of pocket for deductible before insurance starts to cover your claim, but what you won’t be responsible for is any other amount less than your $1M limit.

Talk to your insurance advisor to find out which policy limits, deductible, and premium amounts make the most sense to protect your individual business.

What Does General Liability Cover?

While this coverage doesn’t include employees, it does include damages and/ or injury to clients, other people you do business, and other businesses, as well as complete strangers.

Should an accident occur, regardless of who is at fault, your business could be held responsible. And there are many ways an accident could occur.

Property Damage

Accidentally driving across the neighbors front yard… and into their antique fountain.

Bodily Injury

A client trips on a cord to your power tool, falling and fracturing their wrist, putting them out of work for three weeks.

Illness

A client is blaming the wood stain your painter selected for the migraines that are keeping them home from work.

Completed Product Claims

A cabinet you installed 8 months ago falls and shatters the marble countertop.

Reputation Injury

Remember that tweet you sent out about an annoying competitor? They saw it and they know who you were talking about. You’ll be hearing from their lawyer.

Copyright Infringement

Who knew that the design you came up with for your flier was subconsciously inspired by a competitor’s design from the next town over? They did. And they aren’t happy about it.

Covering all your bases with general liability insurance can turn one of these unfortunate incidences into an unpleasant memory, rather than the downfall of your business.

Lawsuits that are brought against you for any reason can have a lasting impact on your business’ finances. With general liability coverage you can rest easy knowing that, should a suit be brought against you for any of the above coverages, your insurance will have your back.

General liability insurance is there to pay for costs of a third-party lawsuit, including:

  • Evidence expenses
  • Lawyer’s fees
  • Judgments
  • Settlements
  • Miscellaneous court fees

Although liability coverage is quite comprehensive, there are some limits to what it will cover.

What General Liability Doesn’t Cover

This foundational policy is there to protect you from many risks, but not all. Your general liability insurance may not protect you against:

  • Identity theft or data breaches
  • Damage to your own property
  • Injuries or illness to your employees
  • Economic damages (financial losses) to a third party
  • Excessively high damages above and beyond your policy limits

Do your research before you get any contractor general liability policy. You may have a client contract that requires you carry a certain amount of coverage or an umbrella policy. You may need to add someone as a named insured to your liability policy for the duration of a project. And be sure to talk to your insurance agent; you may get a better price for combining multiple contractor insurance policies through the same provider. Bundling general liability with commercial auto and umbrella coverage, for example, could cost you far less than getting each of those policies separately from different providers.

While there are a lot of precautions you can take to try and avoid liability claims, there are no guarantees. Especially in the construction industry.

You wouldn’t start a job without the proper plans and tools in hand. Why would you run a business without the proper financial fail safes and protections in place?

Your contractor insurance portfolio should always start with a foundational general liability policy.

 

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