Embroker’s Construction and Contractors Practice
Redefining the way construction companies purchase insurance, utilizing technology and deep insurance expertise from brokers who genuinely understand the industry.
Insurance for Construction Companies
No matter how experienced you are and how cautiously you run your construction business, unpredictable accidents are always a possibility in this high-risk industry. According to a recent report by the Associated General Contractors of America (AGC), the industry is steadily growing, with employment on the rise in construction in 256 out of 358 metro areas.
However, that doesn’t mean that working as a contractor is any less stressful. A recent study reported on by USA Today ranked construction as the 13th most dangerous profession in the U.S., reporting 15 fatal injuries per 100,000 workers and a total of 24,650 nonfatal injuries in 2016 alone.
Combine these accident and injury-related statistics to the additional risks of unforeseen events – both freak accidents and natural disasters – that could put your entire construction projects, properties, and equipment in danger at any time, it’s easy to see why insuring your construction business is so important.
Getting the right contractors’ insurance is important for any construction professional looking to achieve sustainable growth. Transfer risk via insurance enables you to focus on growing your construction business without worrying that every possible misstep or unforeseen problem could lead to serious setbacks.
We wrote this guide to help you, the reader, understand both the basics of insurance for contractors and construction companies as well as some more advanced considerations. Our hope is that you walk away from this article a more empowered buyer, with a better understanding of the risk you can transfer to other parties via the right insurance coverage.
If you’d like help, we’d invite you to talk with a broker or get started by creating an Embroker account. Our highly experienced insurance experts will work with you to gain a deep understanding of your unique needs before negotiating a customized policy on your behalf. For more clarity on pricing, your business will be benchmarked against similar construction firms and contractors in your vertical.
Why Do Contractors and Construction Companies Need Insurance?
Insuring your construction company is all about managing the risk involved in your profession and transferring that risk to other entities, ie. your insurers. But more than that, it’s about protecting yourself and the people and things that make it possible for you to make a living effectively.
Contractor insurance also provides protection for your clients and your staff. Remember, mistakes made on the job can be as costly for your clients as they can be for you and your team. Giving your clients bad advice, being unable to complete construction projects by the deadline; these types of issues can cost your clients money, which will inevitably lead to claims being filed against you. Furthermore, having insurance in place that mitigates these risks can help you land more clients since many will not work with contractors who lack this type of coverage.
Of course, workers’ compensation insurance is mandatory in just about every state and is certainly something that no construction company can exist without. Construction is a high-risk industry and your workers need to be protected and given assurances that you will be able to help them financially recover from workplace-related injuries.
Insurance can also protect the public, especially if your construction projects take place in areas that are heavily populated. Accidents can happen when there are people constantly located in the vicinity of your construction site and insurance can help cover any financial losses sustained from accidents related to third-parties.
What Insurance Policies Do Construction Companies Need?
While every construction company potentially has a specific set of insurance needs, depending on its size and a variety of other factors, there are certain insurance policies that most should consider to be mandatory parts of their business insurance program:
Workers’ Compensation Insurance: As already mentioned, workers’ compensation is state-mandated, which says a lot about its importance. In fact, even Texas – a state in which most businesses are permitted to opt out of workers’ compensation insurance – having this insurance is mandatory for all construction companies.
This policy will pay for medical bills, rehabilitation, and wage losses to any of your employees that are injured on the job. If an employee is fatally injured on the job site, workers’ compensation will pay benefits to the employee’s family. If your injured employee sues you for negligence, a workers’ compensation policy will cover these legal costs as well.
Commercial Property Insurance: All of your property that is necessary for performing your job will be covered by a good commercial property insurance policy. That includes offices you may have, workrooms on site, tools, furnishings, and more. If any of your covered items are damaged by any event that’s covered in the policy, the insurer will pay the insured value of the items so that you can replace or repair them. A good commercial property policy will also cover items that your business is renting.
Professional Liability Insurance: Often referred to as “contractors errors and omissions,” professional liability insurance covers you in lawsuits that could potentially result from mistakes that you or your employees may have made on a project. All of your defense costs resulting from a client claim related to potential professional negligence on your part would be covered.
If you not only build but also design your construction projects, your business absolutely needs this type of insurance, since taking part in the creation process right from the start of the design phase increases your risk of being sued.
Surety Bonds: We’ve already mentioned the need for construction companies and contractors to protect their clients; this is exactly what surety bonds do. If your company doesn’t deliver what was promised in the contract, then your insurer will be able to reimburse the client through surety bonds, of which there are four specific types:
Contractor license bond: This bond is required by state. Without it, you cannot get licensed to work as a contractor and you will be fined if you try to work without it.
Bid bonds: These bonds guarantee compensation to your client if you fail to meet the terms of your contract.
Payment bonds: These bonds guarantee payments for your subcontractors and suppliers. They also protect your clients from having to pay these costs if you are not able to do so. All contracts that exceed $100,000 require contractors to get payment bonds.
Performance bonds: These bonds make sure that you complete construction projects as your contracts specify. If you don’t meet a deadline or the quality is subpar, your client will be able to make a claim on a performance bond.
Builder’s Risk Insurance: This is a type of inland marine policy that insures the structures that your company is building, along with all of the materials that are onsite. Contractors are able to buy these types of policies on a per-project basis and they will usually cover damage caused to the site and all materials onsite caused by inclement weather, natural disasters, fire, and vandalism.
There is a bit of a debate in the construction industry over whether the contractor or the client should be taking out this policy. Regardless of who takes it out in the end, the policy will be able to cover both the builders and the developers and even subcontractors.
Commercial Auto Insurance: Vehicles are usually very important to the work of contractors, which means that all of the cars, trucks, and vans that you use in your construction work should absolutely be covered in your insurance program. A commercial auto policy provides liability coverage that will pay for damages to third-party property or injuries resulting from accidents involving your business vehicles. You’ll also be able to get coverage for any medical bills of your own and damages that your vehicles may incur.
Equipment Insurance: While builder’s risk will cover the actual building site and the building materials, you still need to insure the equipment that you are using to build your projects. Also, it’s important to note that commercial property insurance will only cover equipment that is always being used at one particular site. Specialized equipment insurance is needed for the equipment that you are taking with you and using at multiple construction sites, such as forklifts, trailers and other machinery that is mobile in nature. A good equipment insurance policy should also cover tools and equipment that you are renting.
Highly-Publicized Examples of Insurance at Work for Contractors
- WGNS Radio President Scott Walker sued the company that built his family’s home, which was destroyed when a tornado struck the area and killed his wife.
See: Wrongful death lawsuit filed against builder of home destroyed by Christiana tornado
- A 22-year-old construction worker who almost lost an arm in a workplace injury sued a construction company over the incident, seeking from $200,000 to $1 million in his lawsuit.
See: Construction worker sues over injury that nearly cost him an arm
- The Sherwin-Williams Company filed a complaint against Terraquip Construction Products Inc. alleging that it failed to perform its contractual obligations. The paint distributor claimed that the construction company owed them $13,261.44 for paint products that were delivered to the contractors.
See: Paint distributor sues contractor for breach of contract
- Hollywood actress Denise Richards sued a contractor who allegedly botched a repair of her air conditioning, partially destroyed her roof, and demolished parts of her house they then allegedly charged her a premium to fix.
See: Denise Richards sues for $1m after contractor ‘botched repairs and left her without air-conditioning
Construction Insurance Costs
As is the case with most types of insurance, there are many different factors that needed to be considered before determining how much your construction insurance is going to cost. Premiums will be determined by standard factors such as the size of your company, the number of employees working for you, whether there are subcontractors involved, how big your projects are generally, what your claims history looks like, the locations of your projects, and more.
Another aspect that could factor into policy price is the duration of your policy. If you have builder’s risk coverage for a project that is going to take you more than a year to complete, for example, then you will have to pay more for it. If you decide to buy insurance for a construction project that you have already started prior to getting the insurance, you might see higher premiums in this case as well.
Not sure if you’re getting a fair deal?
A frequent question we hear — and a common problem with construction insurance underwriting in general — is that no one really knows how an underwriter arrives at a premium.
Embroker believes in giving our clients better choices using data and transparency. We benchmark all of your policies against similar construction companies and contractors in your vertical, then procure multiple quotes from an independent broker. We also cross-reference your costs with firms of comparable size, policy limits, claims history, and risk tolerance.
Now that you have a better understanding of construction insurance, you may be wondering how all of this affects your business and where to go from here. If you need more help or information you can reach out to our team of expert brokers. If you prefer to get started on intelligent quotes, you can get started by creating an Embroker account today.
Having a quality construction insurance program in place and a broker who can help you navigate the terms and conditions of your policies, as well as the potential claims processes, can save you money and, more importantly, time.
Embroker is the easiest way to intelligently insure any business. We’re here to help!
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