How Does Contractors' General Liability Insurance Work?

The Insurance

Just as doctors have malpractice insurance to cover damages from a accident or mistake in the treating a patient, contractors have insurance to cover damages from accidents and mistakes on job sites. It called contractors' general liability insurance. Contractors of any type need general liability insurance because costs associated with a disaster on the job are often very expensive. These disasters include accidents involving employees, clients and even bystanders. Mistakes made by a contractor's employees are also covered under this insurance.

The Incident

Contractors purchase general liability insurance before going into business or starting their first job. Premiums are paid on a regular basis, from monthly to yearly. Immediately after an incident, the contractor calls or visits his insurance agent to file a claim. This entails filling out a form and providing any information available at the time, like police reports, victim contact information and hospital records. The insurance agent files or submits the claim to the claims department and an investigation begins.

The Investigation

During the investigation, all aspects of the incident are recorded and reviewed. The investigator is often called the "claim adjuster." She interviews witnesses and everyone involved while collecting information. The adjuster may also take measurements or ask witnesses to recreate the scene. When she has all of the pertinent information, the adjuster makes and submits a report to the insurance company's legal department.

The Decision

The legal department reviews the report, along with all of the physical evidence collected by the adjuster, and decides who is at fault for the accident or mistake. They also decide on payment or nonpayment for legal fees, damages, hospital bills and repairs.
This decision relies on fault for the accident. If the contractor is at fault and the incident is covered under the policy, then payment is made. If the client, victim or another third party is at fault, the legal department has two more choices. It can pay the claim and then take the person at fault to court to recoup the money paid. The legal department may also decide not to pay, denying the claim.

The Outcome

After a claim is denied, the case is often still ongoing. This happens when the contractor appeals the claim decision is appealed or the insurance company is sued. An appeal goes through a special review process and end in a final approval or denial. A lawsuit is an effort to force the insurance company to pay through the court. This process often takes several years and is very expensive to both the contractor and the person suing.
The contractor may be sued as well, but the contractor's general liability insurance pays for legal fees and provides an attorney. This service is included in the policy.
In short, contractor's general liability insurance protects a contractor in an industry where accidents happen frequently.