Construction Insurance Policy Information

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 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.

Construction insurance protects your contracting business from legal liability with rates as low as $27/mo. Get a fast quote and your certificate of insurance now.

Below are some answers to commonly asked construction insurance questions:

What Is Construction Insurance?
How Much Does Construction Insurance Cost?
Why Do Construction Companies Need Insurance?
What Type Of Insurance Do Construction Businesses Need?
What Does Construction Insurance Cover & Pay For?

What Is Construction Insurance?

Construction insurance is a type of insurance coverage designed specifically for construction projects. It provides protection for construction companies, contractors, and subcontractors against financial losses and liabilities associated with construction activities.

This type of insurance may cover a range of risks, such as property damage, injury to workers or bystanders, and third-party liability claims. Some common types of construction insurance include builders risk insurance, liability insurance, workers' compensation insurance, and performance and payment bonds.

The specific type and amount of insurance coverage required for a construction project may vary based on factors such as the size and scope of the project, the type of work being performed, and local regulations.

How Much Does Construction Insurance Cost?

The average price of a standard $1,000,000/$2,000,000 Construction Insurance policy for small construction businesses ranges from $27 to $59 per month based on location, size, payroll, sales and experience.

A variety of factors determine the cost of your 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.

Why Do Construction Companies Need Insurance?

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.

What Type Of Insurance Do Construction Businesses Need?

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 construction insurance and adequate coverage before taking on work.

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 automobile.

Inland marine coverage for expensive mobile equipment, supplies, other tools of the trade and builders’ risk can be vital.

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 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 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 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. 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, 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 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 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.

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.

What Does Construction Insurance Cover & Pay For?

Construction insurance provides coverage for risks associated with construction projects, such as property damage, bodily injury, and other liability issues that can arise during the course of a project. Here are a few examples of construction insurance claims and how they can be covered:

Property Damage: During the course of construction, property damage can occur in a variety of ways, such as damage caused by heavy equipment or tools, water damage from broken pipes, or fire damage. Construction insurance can help cover the cost of repairs or replacement of damaged property.

Bodily Injury: Construction sites can be dangerous places, and accidents can happen. If a worker or visitor is injured on a construction site, construction insurance can help pay for medical expenses, lost wages, and other related costs.

Delay Claims: Construction projects can be delayed for a variety of reasons, including weather, labor strikes, or unexpected problems with materials or equipment. Delay claims can result in significant losses for contractors and owners, and construction insurance can provide coverage for these losses.

Professional Liability: Architects, engineers, and other design professionals involved in construction projects can be held liable for errors or omissions that result in losses for the owner or contractor. Professional liability insurance can help cover the costs of legal defense and settlement or judgment awards.

Pollution Liability: Construction activities can generate pollution, such as dust, noise, and chemical emissions, that can harm the environment and neighboring properties. Pollution liability insurance can help cover the costs of cleanup and damages resulting from pollution incidents.

In summary, construction insurance can help pay for legal expenses, damages, and other costs associated with various types of construction claims.

Commercial Insurance And Business Industry Classification

1521: General Contractors - Single Family Homes

Division C: Construction | Major Group 15: Building Construction General Contractors And Operative Builders | Industry Group 152: General Building Contractors-residential

1521 General Contractors - Single Family Homes: General contractors primarily engaged in construction (including new work, additions, alterations, remodeling, and repair) of single-family houses.

Building alterations, single-family-general contractors
Building construction, single-family-general contractors
Custom builders, single-family houses-general contractors
Designing and erecting combined: single-family houses-general con-
Home improvements, single-family-general contractors
House construction, single-family-general contractors
House: shell erection, single-family-general contractors
Mobile home repair, on site-general contractors
Modular housing, single-family (assembled on site)-general
One-family house construction-general contractors
Prefabricated single-family houses erection-general contractors
Premanufactured housing, single-family (assembled on site)-general
Remodeling buildings, single-family-general contractors
Renovating buildings, single-family-general contractors
Repairing buildings, single-family-general contractors
Residential construction, single-family-general contractors
Rowhouse (single family) construction-general contractors
Townhouse construction-general contractors

1522: General Contractors-Residential Buildings, Other Than Single-Family

Division C: Construction | Major Group 15: Building Construction General Contractors And Operative Builders | Industry Group 152: General Building Contractors-residential

1522 General Contractors-Residential Buildings, Other Than Single-Family: General contractors primarily engaged in construction (including new work, additions, alterations, remodeling, and repair) of residential buildings other than single-family houses.

Apartment building construction-general contractors
Building alterations, residential: except single-family-general
Building construction, residential: except single-family-general
Custom builders, residential: except single-family-general contractors
Designing and erecting, combined: residential, except single-family-
Dormitory construction-general contractors
Home improvements, residential: except single-family-general
Hotel construction-general contractors
Motel construction-general contractors
Prefabricated building erection, residential: except
Remodeling buildings, residential: except single-family-general
Renovating buildings, residential: except single-family-general
Repairing buildings, residential: except single-family-general
Residential construction, except single-family-general contractors

1541: General Contractors-Industrial Buildings and Warehouses

Division C: Construction | Major Group 15: Building Construction General Contractors And Operative Builders | Industry Group 154: General Building Contractors-nonresidential

1541 General Contractors-Industrial Buildings and Warehouses: General contractors primarily engaged in the construction (including new work, additions, alterations, remodeling, and repair) of industrial buildings and warehouses, such as aluminum plants, automobile assembly plants, pharmaceutical manufacturing plants, and commercial warehouses.

Aluminum plant construction-general contractors
Building alterations, industrial and warehouse-general contractors
Building components manufacturing plant construction-general
Building construction, industrial and warehouse-general contractors
Clean room construction-general contractors
Cold storage plant construction-general contractors
Commercial warehouse construction-general contractors
Custom builders, industrial and warehouse-general contractors
Designing and erecting, combined: industrial-general contractors
Drycleaning plant construction-general contractors
Factory construction-general contractors
Food products manufacturing or packing plant construction-general
Grain elevator construction-general contractors
Industrial building construction-general contractors
Industrial plant construction-general contractors
Paper pulp mill construction-general contractors
Pharmaceutical manufacturing plant construction-general contractors
Prefabricated building erection, industrial-general contractors
Remodeling buildings, industrial and warehouse-general contractors
Renovating buildings, industrial and warehouse-general contractors
Repairing buildings, industrial and warehouse-general contractors
Truck and automobile assembly plant construction-general contractors
Warehouse construction-general contractors

1542: General Contractors-Nonresidential Buildings, Other than Industrial Buildings and Warehousesl

Division C: Construction | Major Group 15: Building Construction General Contractors And Operative Builders | Industry Group 154: General Building Contractors-nonresidential

1542 General Contractors-Nonresidential Buildings, Other than Industrial Buildings and Warehouses: General contractors primarily engaged in the construction (including new work, additions, alterations, remodeling, and repair) of nonresidential buildings, other than industrial buildings and warehouses. Included are nonresidential buildings, such as commercial, institutional, religious, and amusement and recreational buildings. General contractors primarily engaged in the construction of industrial buildings and warehouses are classified in Industry 1541.

Administration building construction-general contractors
Auditorium construction-general contractors
Bank building construction-general contractors
Building alterations, nonresidential: except industrial and
Building construction, nonresidential: except industrial and
Church, synagogue, and related building construction-general
Civic center construction-general contractors
Commercial building construction-general contractors
Custom builders, nonresidential except industrial and
Designing and erecting, combined commercial-general contractors
Dome construction-general contractors
Farm building construction, except residential-general contractors
Fire station construction-general contractors
Garage construction-general contractors
Hospital construction-general contractors
Institutional building construction nonresidential-general contractors
Mausoleum construction-general contractors
Museum construction-general contractors
Office building construction-general contractors
Passenger and freight terminal building construction-general
Post office construction-general contractors
Prefabricated building erection, nonresidential except industrial and
Remodeling buildings, nonresidential except industrial and
Renovating buildings, nonresidential except industrial and
Repairing buildings, nonresidential except industrial and
Restaurant construction-general contractors
School building construction-general contractors
Service station construction-general contractors
Shopping center construction-general contractors
Silo construction, agricultural-general contractors
Stadium construction-general contractors
Store construction-general contractors

Construction Insurance - The Bottom Line

Finding the right 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 broker 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.

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.

The construction industry is a high-risk industry that requires business insurance to protect against potential losses. There are several reasons why the construction industry needs business insurance:

Liability risks: Construction projects often involve working on other people's property, which can lead to potential liability risks if any damages or accidents occur. Liability insurance helps to protect against these risks by providing coverage for any legal fees or damages that may arise.

Property damage: Construction projects can also be at risk for property damage, whether it's the company's own equipment or tools, or the property being worked on. Commercial property insurance including inland marine helps to cover the cost of repairs or replacement of any damaged property.

Worker injuries: Construction is a physically demanding industry, and accidents and injuries are a common occurrence. Wrokers comp helps to cover the cost of medical treatment and lost wages for injured workers.

Financial losses: Construction projects can be disrupted by a variety of factors, such as weather, delays, or changes in scope. Business insurance helps to protect against financial losses that may occur as a result of these disruptions.

Overall, insurance is an essential component of the construction industry as it helps to protect against a range of potential risks and losses. Without it, companies in the construction industry would be vulnerable to financial ruin and may not be able to continue operating.

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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