Being a contractor has many great things going for it. Contractors are their own boss, and they have better flexibility in setting their work schedules. Of course, the money they can make by doing contracting work isn’t bad either. Contractors do tend to make more money than if they were everyday employees.
Being a contractor also comes with certain responsibilities, like the purchase of contractors insurance. Then again, every contracting business needs a risk management strategy, and at the heart of it should be proper contractors insurance coverage. After all, contracting entails certain risks, such as accidents that could trigger claims against your company, which could jeopardize the future of your business if you don’t have an insurance policy to protect you.
If you’re a contractor and you don’t have any type of coverage yet, here are the things you need to know about contractors insurance claims.
One type of contractors insurance that is a must-have for any contracting business is general liability insurance. As long as your business has general liability coverage, you should be able to cover the costs of bodily injury and property damage claims made against your contracting company. Without it, your business will be very vulnerable to the costs that come with a liability claim.
General liability insurance also covers claims made against your business because of its advertising practices, as well as claims of libel and slander.
Be Mindful of the Exclusions
Contractors insurance policies typically have provisions that state certain risks and incidents that they don’t cover. General liability insurance, for example, only provides coverage for accidental property damage or injury. Any intentional damage or injury is excluded, and this exclusion and others are usually listed on the first two pages of your policy.
Theft of tools, equipment, and materials is pretty common at construction sites. It just so happens that theft isn’t covered by general liability insurance. Considering the costs that losing tools, equipment, and materials entails, you will need to get builders risk insurance so you can make a claim when thieves strike at your worksite.
Construction delays happen for whatever reason, and when they do, they are likely going to cost the people financing the project money. Such a delay is also bound to cost you if the company behind the project decides to file a lawsuit against you in an attempt to recoup some of that money they lost because of it.
You can consider yourself fortunate if your company is already covered for these exposures. But if it’s not, then do what you can to purchase builders risk insurance before you jump at more opportunities for new and large projects.
Design and Build Issues
Did you know that clients can file a claim against your business if the project you worked on for them proves to have design and build flaws that they can say have impacted them adversely? Again, a general liability insurance policy will not cover that. What will is professional liability insurance, which will help protect you and your business from the costs that come with defending yourself in court after a client files a suit.
A professional liability policy can also protect you when a client sues for financial losses incurred because of a construction delay in the project you’re doing for them.
Completed Project Claims
You may have already finished a project, but past clients can still file a lawsuit against you or your company for the work you have done for them.
Let’s say that you have completed a balcony for a client. Its entire construction went smoothly, and by the time you’re done, the balcony looked terrific. Your client seemed very happy with the result and even praised the workmanship that you and your crew put into it.
Then the whole thing collapsed a few weeks later and, to make matters worse, caused injuries to the homeowner. You can now expect a very serious lawsuit to come your way.
If your contracting business exposes you to these types of scenarios, you need to obtain the right coverage to protect yourself.
Hire Only Insured Subcontractors
More often than not, contractors have to hire subcontractors, particularly for bigger projects. If you want to avoid being the target of multiple claims against your business, it would be in your best interest to hire only subcontractors who are holders of contractors insurance policies as well. Better yet, hire only subcontractors whose coverage is equal or at least close to the amount of coverage that you yourself have.
Understanding Step Increases
According to statistics, the number of contractors insurance claims in the first year of a policy is often low or even zero. However, there will be a rise in the claims rate in succeeding years, and that is why insurance companies have built step increases into their system. With step increases, your premium will likely rise every year, a fact that should help you prepare your budget.
Cheapest Does Not Mean the Best
It’s unfortunate that some contractors do not really see contractors insurance coverage as a necessary expenditure, so they either avoid purchasing one altogether or opt for the cheapest policy that they can find.
The problem with a cheap policy is that the coverage is typically lower too, and that means it might not be enough to cover the cost a single claim, much less multiple ones, against your business.
In this day and age where just about anyone can sue anybody for anything, it pays to have a more comprehensive contractors insurance policy. So if you’re thinking about insurance coverage for your contracting business, always overestimate your coverage needs. Remember, a suit against your construction business can already cost you thousands of dollars in attorney’s fees alone. Add that to other court and settlement expenses, and it’s going to be less likely for a cheap policy to cover everything.
It may cost a little extra, but a more comprehensive contractors insurance coverage will probably pay for most, if not all, of the expenses that come with any claim against you.
Policy Period and Extended Coverage
Your contractors insurance policy period begins on the day your contractors insurance is activated. Once the policy expires, then that would be the day the policy period ends.
You can, however, extend that period by purchasing extended coverage, which would allow you to honor any claim that could be made against you within the period specified in your extended coverage, usually 60 days after the expiration of your policy.
Know Your Policy by Heart
Knowing your policy down to the fine print may seem like a very tedious task, but it’s imperative that you do it. With the varying limits, exclusions, and fine print that every single contractors insurance policy carries, the only way to protect yourself from any gaps, excesses, or confusion in your policy is to understand everything about it thoroughly. You wouldn’t want to be in a situation where you’re supremely confident that your carrier will cover any claim you or other entities make against your policy, only to discover later that it’s an exclusion clearly stated in it.
With a complete awareness of what your contractors insurance policy covers and what it doesn’t, you will be better prepared for any claims that clients and other interested parties could throw your way.
This a guest post from Custom Contractors Insurance, LLC, an Arizona roofing and contractors insurance company.