A look at important, but often overlooked, insurance coverages for contractors.
Insurance isn’t a fun topic. No one gathers around the water cooler to discuss the latest insurance options for contractors. The real problem? Most contractors are underinsured and don’t know where to begin to look for gaps.
With an ever-changing legal landscape, knowing the importance of overlooked insurance coverages can ensure contractors and their workers are protected when the unexpected happens.
Contractors should first talk to an experienced construction insurance provider to ensure they have the main coverages in place. These typically include some combination of the following:
After reviewing and securing these main coverages, it is vital for contractors to then secure the often-overlooked coverages to protect their businesses and workers.
Let’s explore four of these often-overlooked coverages – and why contractors may need them – by looking at some common construction scenarios.
Scenario #1
A structure under construction is damaged after an electrical fire, causing work to stop.
Coverage solution: Builder’s Risk Insurance
Most contractors will require additional coverage to ensure a structure is protected during the construction phase of a project. Specifically, a Builder’s Risk Insurance policy adds protection for contractors building new construction or remolding existing structures. This insurance helps cover the cost of labor, materials and equipment needed to rebuild after a fire or other unexpected situations like vandalism or weather-related damage. Read the 7 Pitfalls to Avoid When Purchasing Builder’s Risk Insurance to help prepare for this important coverage.
Scenario #2
A client claims a mistake was made during construction and must be corrected.
Coverage solution: Errors and Omissions Insurance
What happens when the pipes you installed in a commercial building backup with sewage water? What happens if there was a problem with the initial design of the project? Who pays for the costly repairs? Chances are, you as the contractor will be financially responsible. What’s more, your General Liability policy will often not cover errors or negligence in your company’s services.
The cost to repair these types of damages can be catastrophic, which is where Errors and Omissions Insurance comes in. Every contractor should carry this coverage and make sure it doesn’t lapse, as claims are made on your current policy and not from when an error was made.
Scenario #3
Fuel leaks from a gas tanker into the ground on a construction site.
Coverage solution: Pollution Liability Insurance
You may not think you don’t have hazardous materials on your project site, but something as simple as gasoline leaking into the ground while refueling equipment can potentially result in a lawsuit or, at the very least, the need to stop work and initiate an immediate clean-up. If you don’t have Pollution Liability Insurance, you could face an enormous bill – and even legal action.
Pollution Liability Insurance is becoming essential coverage for contractors as environmental laws become stricter. In fact, many public sector projects even require contractors to have this coverage in place before awarding a contract. The bonus is that carrying this coverage could help contractors attract new business as it can be a selling point for clients who prioritize sustainability and environmental protection.
Scenario #4
A cyberattack steals your data and crashes your computer system.
Coverage solution: Cyber Insurance
Contractors rely on a variety of online tools every day, from programs that help map out workers’ schedules to payroll records and client billing. This data is both sensitive and vulnerable to attack. Small and medium businesses in America are more likely to be hit by a cyberattack – and less likely to recover. Nearly 40% of small businesses reported data loss from a cyberattack that caused significant disruption and financial loss.
As a contractor, if you are the victim of a cyberattack, you will need help right away to keep projects moving forward, ensure the financial health of your business, and the privacy of your clients and workers. Cyber Insurance is made for these situations, which are unfortunately becoming more prevalent. There are several types of cyber insurance out there, so make sure to shop around for one that covers your needs. Learn more about how to porrect your company by reading AGC’s 2021 report on why the construction industry is being impacted by cyberattacks, and what to do about it.
Final thoughts
The right combination of insurance coverage is something all contractors need in place. The time to secure coverage is now, before a disaster happens. The cost of not having proper coverage could bankrupt your business, ruin your reputation and put skilled workers at risk. Build insurance into your overall business plan and review it often. Be sure to consult with professionals when anything changes that could require an adjustment in your insurance needs. Ask your sub-contractors about their coverage before hiring. The best-case scenario is that you have all the right insurance coverage and never need to use it. But it is your responsibility to be prepared for the worst-case scenario.
Takeaways
- Start with the basic coverages – but don’t stop there.
- Get multiple quotes from different companies.
- Read your policy carefully and read it often, especially after adding new coverages.
- Review your insurance needs as your company grows or changes.
- If you work with sub-contractors, ask what coverages they have because many of your insurance policies will not cover them.
Be a better insurance buyer
Chris Mikolay, Senior Vice President at National Interstate Insurance Company, spoke to construction professionals about how to Be A Better Insurance Buyer at CONEXPO-CON/AGG 2023. See how Mikolay connects “Pretty Woman,” Teddy Roosevelt and Steve Jobs in this entertaining and informative discussion. This full session, as well as all others from CONEXPO-CON/AGG 2023, are available on demand. Click here to explore all education sessions at CONEXPO-CON/AGG 2023 in one place.
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