A contractor should always maintain general liability, automobile liability and workers compensation insurance to protect against the usual risks inherent in the business. Depending on the contractual relationship with the owner, a contractor may also need to maintain builders risk insurance to protect the work in progress from any loss or damage. Without these coverages, the contractor faces significant risk from potential claims.
Commercial General Liability Insurance
The most basic insurance coverage that contractors should always keep is commercial general liability insurance. This coverage protects the contractor from claims made by third parties for bodily injury or property damage arising from the contractor's operations. Construction is a hazardous activity and it is not uncommon for innocent bystanders to be injured around construction sites. The general liability policy also provides completed operations coverage that insures against damage or injury caused from work once it has been completed.
Automobile Liability Insurance
It is not uncommon for a contractor to have a vehicle utilized in the course of its construction business. Vehicles are subject to mandatory financial responsibility laws set by the state of registration and operation. Even without the statutory requirement, it is a good idea to insure against potential automobile liability claims. The contractor should also maintain coverage for non-owned autos in its policy to cover the losses of employee personal vehicles in the course of employment.
Workers Compensation Insurance
If the contractor has any employees, it must procure workers compensation insurance to protect its employees in the event of work-related injury. Each state has its own laws governing the type and amount of workers compensation insurance employers must maintain. Coverage is usually in the statutorily prescribed amount of benefits to injured employees.
Builders Risk Insurance
Builders risk insurance covers damage to the project while it is under construction. You or the contractor may purchase coverage, which you should outline in the contractual agreement. In addition to the physical cost of construction materials, builders risk coverage may also extend to soft costs, such as engineering expenses and delay in completion losses. The contractor and owner should jointly agree on the total amount of coverage required to protect both interests.