California Construction Insurance Policy Information
California Construction Insurance. Building contractors manage the construction of a new building or renovation to an existing building. Building contractors generally specialize in constructing single family homes or commercial buildings such as factories, offices, restaurants, or stadiums. Most have a set group of permanent employees, and then subcontract the remaining tasks to specialty subcontractors.
While firms whose employees do no actual construction work are commonly called "paper" contractors, they generally act as "prime" contractors for such tasks as framing carpentry, structural masonry, or metal building erection. Mechanical tasks such as plumbing, heating, and electrical are usually completed by subcontractors.
Once the land has been purchased and the design or architectural work has been done, the building contractor oversees the project from the site or land preparation, through excavation and laying of the foundation, to the completion of the building, including the interior finish.
Typically, the building contractor first turns the architect's design into specifications for work and materials, setting quality standards, scheduling the phases of the project, and dictating insurance requirements for the project as a whole and for the subcontractors. The contractor then gets bids (solicits competitive proposals) from potential subcontractors and suppliers. Together with the customer (the project owner), the building contractor awards the bids to the successful subcontractors.
The building contractor is also responsible for complying with all local and state ordinances, codes and zoning requirements, including purchasing the necessary permits and obtaining the necessary surety bonds.
With the right mix of California construction insurance coverage types in place, you can reduce financial fallout from injuries on the jobsite, damage to equipment, and losses that result from other covered perils.
California construction insurance protects your contracting business from legal liability with rates as low as $97/mo. Get a fast quote and your certificate of insurance now.
Risks Faced by Construction Companies
Construction companies and independent homebuilders, carpenters, and others working in the industry are under constant exposure to risks that can leave them financially liable for damages.
Some of the most common types of risks include property damage to the company's equipment or property, loss of income due to events beyond the company's control, injuries and illnesses experienced by employees, and liability risks when injuries or property damage causes loss for clients or other third parties.
The Role of Construction Insurance
Construction insurance is a type of insurance that can be the difference between losing money and turning a profit when you take on a construction job. It is vital that you make sure that you have quality CA construction insurance and adequate coverage before taking on work. The coverage that you select depends on a variety of factors, which include the company size, the number of employees you have working for you, and the specific type of construction work that your company performs.
Some of the types of California construction insurance coverage you might consider include:
- General liability coverage. This type of coverage reduces financial risks for your construction business if you are deemed responsible for bodily harm or property harm to another person. General liability is usually required for all worker's in the construction industry in order to obtain a construction or contractor's license or permit.
- Builder's risk coverage. This is liability construction coverage for CA on-site damages that might occur on a job site that you are working on. Although the coverage provided varies by company, this policy may also provide coverage for construction materials that are on the site, prior to their installation. Limits for the California construction insurance policy are based on the value of the completed structure, in most cases.
- Professional liability coverage. If you are a contractor who provides consultation, advice, or design work as part of the services rendered, then professional liability coverage can protect you from any allegation of wrongdoing if the advice or consultation goes south. Also referred to by the name 'errors and omissions' coverage, this insurance type covers any claims against you if your advice, design, so on, causes the recipient of your services a loss.
- Income loss coverage. If you experience a business interruption that results in loss of income due to a covered peril, this type of coverage can provide monetary help for up to a year.
- Worker's compensation. CA requires this valuable coverage if you have employees. This provides coverage for employee losses due to accident, injury, illness, or death. It can also pay medical costs.
- Commercial auto coverage. If you use a vehicle in the course of doing business in CA, then that vehicle should have auto coverage specially designed for commercial use. This coverage pays for losses by both you and anyone involved in an accident that you or your employees cause.
Business Owner's Policies for Construction Businesses
A BOP, or business owner's policy, is often an appropriate type of California construction insurance coverage. If you have a small business, this policy, which combines multiple coverages, may be right for you. To qualify, you should generate $5 million or less in revenue annually and hire no more than 100 employees. These CA construction insurance policies generally provide:
- General liability coverage to pay up to $1 million in losses due to injuries or damages incurred by a third party.
- Medical payments for injuries to people on your property.
- Property coverage for damage to your business' property and equipment.
- Business income loss for business interruption and work stoppage.
- Equipment breakdown coverage for mechanical breakdowns.
- Rental vehicle insurance for losses to a rented or borrowed vehicle.
Cost of Construction Insurance
A variety of factors determine the cost of your California construction insurance premiums. The type of work that you do, the amount of work that you do, the number of employees you have, and your history of claims all factor into your costs. If you construct high-value buildings or other structures or you develop land from the ground up, your costs may be increased. In some cases, you will pay a particular percentage of your expected sales as a premium, with monthly payments to follow.
California Construction Risks & Exposures
Premises liability exposures at the contractor's premises are usually limited due to lack of public access. Equipment or materials provided by subcontractors are not stored at the building contractor's office location. At the job site, the building contractor is ultimately responsible for all injuries or property damage that results from construction operations, including those that are due to the acts or omissions of subcontractors.
Lack of adequate communication between the different subcontractors can cause hazardous working conditions, especially if blasting or similar hazardous operations take place. Heavy machinery used for excavation may cut power lines, disrupting service to other homes or businesses in the vicinity. Welding presents potential for burns or setting the property of others on fire if not conducted safely.
The contractor's employees can cause damage to the client's other property or bodily injury to members of the public or employees of other contractors. Tools, power cords, and scrap all pose trip hazards even when not in use. If there is work at heights, falling tools, or supplies may cause damage and injury if dropped from ladders, scaffolding, or cranes. Failure to protect equipment, building materials, and property of others left at job sites from theft and vandalism may result in a subrogated loss.
Construction sites create attractive nuisance hazards, particularly to children who enjoy climbing and vandals after operations have ceased for the day and on weekends. Safety barriers such as perimeter fencing should be used to control access to the jobsite.
Contractual liability exposures are very high for building contractors. While it is important to control physical hazards, the absolute key to successful performance is likely to be management of contractual language. Catastrophic financial losses and expensive litigation may arise if the building contractor fails to verify that subcontractors' certificates of insurance are accurate and the limits are adequate for both liability and workers compensation coverages.
In addition, the building contractor and project owner must be included as additional insureds on the subcontractors' policies. The specific terms of the additional insured status may play a significant role in who pays for a loss.
Completed operations exposures are high due to the injury and property damage that can result from improper interpretation of building plans, use of materials that do not meet the quality standards required by design specifications, inadequate construction techniques, or lax supervision of the acts of subcontractors. Hazards increase in the absence of proper record keeping of work orders and change orders, as well as quality control inspections and signed approval of the finished work by the customer.
Workers compensation exposures vary based on the size and nature of the job. When an executive supervisor is only reviewing and giving oversight, the exposure is clerical with some jobsite inspection. However, if actual construction work is done or supervisors remain at job sites continuously, the exposures increase to those encountered by each type of worker on the project.
Control of the jobsite is the responsibility of the building contractor, who may be held responsible for any injuries of subcontractors on the job. Verification that every subcontractor carries adequate workers compensation coverage is important.
Property exposures at the building contractor's own location are usually limited to that of an office. Ignition sources include electrical wiring, heating, and air conditioning systems. If the building contractor is a paper contractor, there will be no yard storage of building materials or equipment since there are no operations other than paperwork.
If the building contractor is involved in framework or masonry, lumber or bricks may be stored on site, increasing the exposure to fire, inclement weather, vandalism, and theft.
Crime exposure is from employee dishonesty. Background checks should be conducted prior to hiring any employee. All ordering, billing and disbursements must be handled as separate duties and annual external audits conducted.
Surety bond exposures arise from the clients' requirement that the general contractor obtain financial guarantees for the completion of projects and payment of labor and supplies. Inability of the contractor to qualify for these bonds due to their prior experience and financial condition may indicate a moral hazard.
Inland marine exposures may include accounts receivable if the contractor bills customers for services, builders' risk, contractors' equipment, goods in transit, installation floater, and valuable papers and records for project plans, clients', subcontractors', and suppliers' information. Builders' Risk is an important coverage for many building contractors.
Besides obtaining coverage for themselves, they may need to coordinate their subcontractors' coverages and terms so limits are adequate for the overall project. Subcontractors generally have their own equipment with independent coverage. The building contractor may arrange for the lease of larger equipment, such as cranes, for subcontractors to use, either with or without operators.
The contractual agreements between the building contractor and the rental firms determine who is responsible for any damage to the rented equipment. If the building contractor performs tasks at the job site, equipment may be subject to water hazards, overturn, drop, and fall from heights, or being struck by other vehicles. Materials and equipment left at job sites may be subject to theft and vandalism loss unless proper controls are in place. Copies of building plans should be kept at an offsite location for easier restoration.
Commercial auto exposures may be limited to private passenger only if executive supervisors simply travel from site to site. If the building contractor is also handling part of the construction, workers, equipment, and supplies may be transported to and from job sites.
Vehicles may have special modifications or built-in equipment such as lifts and hoists. Large materials such as air conditioners may be awkward and require special handling and tie-down procedures. Shifting of loads could result in overturn. If vehicles are provided to employees, there should be written procedures regarding personal use by employees and their family members. All drivers must have appropriate licenses and acceptable MVRs. Vehicles must be maintained and the records kept in a central location.
Finding the Right Policy for Your Needs
Finding the right California construction insurance is easiest when you work with a professional insurance agent who understands the construction industry. An agent who works with general contractors, heavy contractors, home-improvement companies, and specialized contractors such as electricians, plumbers, framers, carpenters, or masons is most adept to understanding your needs and helping tailor a policy for your needs. The agent can also help you compare quotes from multiple companies to get the right policy for your budget, based on the requirements you have and the individual perils that your business faces during day-to-day operation.
California Economic Data, Regulations & Limits On Commercial Insurance
If you are an entrepreneur and you considering having your operations located in California, it's essential that you have a full understanding about the economy of the state, as well as the regulations and limits that are in place for commercial insurance.
If you are considering opening up a business in the Golden State, you first want to make sure that it is a sound location for your operations. That means that you should understand some key information related to the state's economy, as well as the types of insurance coverages that businesses are legally required to carry.
Economic Trends For Businesses In California
In terms of job creation, the state of California exceeds rate of job growth in the United States; however, as the state's metropolitan areas are reaching employment capacity, job growth is starting to slow. In 2017, the rate of growth was 2.1 percent, which is the slowest rate of growth since 2011; but it is still expected to increase by 1.8 percent by the end of 2018, and 1.2 percent by the end of 2021.
In the month of April, the unemployment rate in California dropped to 4.2 percent, which is a record low. This unemployment rate is expected to remain consistent for the rest of the calendar year; however, it's forecasted that the rate will start to increase in 2021.
The strongest labor market in the state is in the Bay Area, where the unemployment rate was 3.4 percent in 2017. Southern California follows, with an unemployment rate of 4.5 percent in 2017. In the Central Coast region, the rate was 5.4 percent and in the Central Valley, it was 6.6 percent. While the unemployment rate is considered high in these areas, they have decreased dramatically over the last 12 month period.
The industries that are expected to see the most growth in CA include:
- Information Technology
CA Commercial Insurance Regulations And Limits
The California Department of Insurance regulates insurance in the Golden State. In the state of CA, commercial liability insurance is not required; however, since the state does not cap rewards for liability law suits, business owners are wise to invest in this type of coverage. The amount of coverage recommended varies depending on the size of the business and in the industry.
Workers' compensation insurance is the only type of coverage that business owners are required to have. This applies to any organization that employs a salaried or hourly staff, even if that staff only consists of one employee. Furthermore, if an employee is injured or becomes ill as a result of work, business owners must pay for CA workers' comp benefits.
Additional Resources For Construction Contractors Insurance
Learn about construction contractors insurance, including how much the premium costs and what is covered - and how business insurance can help protect your construction business from lawsuits.
- Blasting & Drilling Contractors
- Bridge Contractors
- Building Contractors
- Demolition Contractors
- Dock & Pier Contractors
- Dredging Contractors
- Foundation Layers
- General Contractors
- Sewer Contractors
- Steel Erection Contractors
- Surety Bonds
Construction contractors have substantial needs for many types of insurance coverage. Most would point to the importance of coverage for completed operations, premises liability coverage during construction operations at jobsites and professional or design errors and omissions insurance.
Such coverages can be provided only when the interests of the contractor and of the property owner are understood; particularly the contractual obligations assumed by the contractor. Next in significance is the workers compensation exposure followed by business automobile. Inland marine coverage for expensive mobile equipment, supplies, other tools of the trade and builders' risk can be vital.
Liability coverage is needed by a construction contractor in order to obtain most jobs. In addition, if a contractor wants to stay in business, it must be obtained to protect it from lawsuits due to its premises operations, off-site locations and products/completed operations exposures. Owners and contractors protective liability and railroad protective liability coverages may also be required in certain cases in order for a contractor to meets its obligations for particular jobs.
Many construction contractors do not have the usual location-specific buildings and business personal property exposures. Their business property is more mobile and, therefore, better covered with inland marine coverage forms. However, for those larger construction contractors that own buildings and/or maintain business inventory there are many coverage forms and choices available to them.
Construction contractors use their vehicles to get to and from their workplaces and jobsites. They also use vehicles to transport equipment and inventory to those locations. It is important to cover the liability of these vehicles for injury or damage they may cause, as well as to provide coverage for damage to the vehicles themselves.
Employers are required to provide coverage for injuries sustained by their employees while on the job. Construction contractors must comply with these requirements but some try to avoid them by hiring subcontractors. These subcontractors may actually operate and qualify as employees. The relationship between a contractor and its subcontractors must be carefully evaluated in order to determine if workers compensation coverage is still needed.
Minimum recommended small business insurance coverage: Business Personal Property, Employee Dishonesty, Surety Bonds, Accounts Receivable, Builders' Risk, Computers, Valuable Papers and Records, General Liability, Employee Benefits Liability, Umbrella Liability, Business Automobile Liability and Physical Damage, Hired and Nonowned Auto Liability & Workers Compensation.
Other commercial insurance policies to consider: Building, Business Income with Extra Expense, Earthquake, Flood, Leasehold Interest, Real Property Legal Liability, Contractors' Equipment, Goods in Transit, Installation Floater, Cyber Liability, Employment-related Practices Liability, Environmental Impairment Liability, Stop Gap Liability, Unmanned Aerial Vehicles (UAV) (Drones).
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