Construction insurance is a type of insurance that is designed to protect construction companies, contractors, and property owners from common risks and liabilities. There are many different types of construction insurance available, each of which is designed to cover a specific set of risks. Some of the most common types of construction insurance include general liability insurance, builders risk insurance, and workers’ compensation insurance.
General liability insurance is designed to protect construction companies and contractors from claims of bodily injury, property damage, and other types of liability. Builders risk insurance, on the other hand, is designed to protect property owners and contractors from losses that may occur during construction, such as damage to the building or materials. Workers’ compensation insurance is another important type of construction insurance, which is designed to protect workers who are injured on the job. By having these types of insurance, construction companies and contractors can protect themselves from financial losses and other risks that may arise during the construction process.
Builders Risk Insurance
Builders Risk Insurance is a type of property insurance that covers structures under construction. This insurance policy is essential in protecting construction projects from damage or loss due to unforeseen events such as theft, fire, vandalism, or natural disasters. Builders Risk Insurance is also known as Course of Construction Insurance.
Builders Risk Insurance policies are typically purchased by the property owner, contractor, or developer. The policy can cover the structure, materials, equipment, and fixtures that are part of the project. Some policies may also cover soft costs such as architect fees, engineering fees, and permit fees.
Builders Risk Insurance policies have a specific coverage period that usually starts when construction begins and ends when the project is completed. The policy may be extended if the project is delayed for any reason. It is important to note that Builders Risk Insurance policies do not cover liability claims or injuries to workers on the construction site.
Builders Risk Insurance policies can be tailored to meet the specific needs of a construction project. The policy limits and coverage options can be adjusted based on the size and scope of the project. Some policies may also offer additional coverage for items such as scaffolding, temporary structures, and debris removal.
In summary, Builders Risk Insurance is an essential type of insurance for any construction project. It provides protection against unforeseen events that can cause damage or loss to a project. Property owners, contractors, and developers should consider purchasing Builders Risk Insurance to ensure that their investment is protected.
General Liability Insurance
General liability insurance is a type of insurance that provides coverage for third-party claims of bodily injury, property damage, and personal injury. It is one of the most common types of insurance that construction businesses purchase.
A general liability policy typically covers the following types of claims:
- Bodily injury: If someone is injured on your construction site or as a result of your work, your general liability policy can help cover the costs of medical bills and legal fees.
- Property damage: If you or one of your employees damages someone else’s property, your general liability policy can help cover the costs of repairs or replacement.
- Personal injury: If you are accused of libel, slander, or copyright infringement, your general liability policy can help cover the costs of legal fees and damages awarded to the plaintiff.
It is important to note that general liability insurance does not cover claims related to professional negligence or errors and omissions. For that, construction businesses will need to purchase professional liability insurance.
The cost of general liability insurance for construction businesses can vary widely depending on a number of factors, including the size of the business, the type of work being done, and the location of the business. According to Insureon, the median premium for general liability insurance for contractors and construction companies is less than $70 per month, or $825 per year.
Overall, general liability insurance is an important type of insurance for construction businesses to have. It can provide valuable protection against a wide range of claims and help businesses avoid financial ruin in the event of a lawsuit.
Professional Liability Insurance
Professional liability insurance, also known as errors and omissions insurance (E&O), is an essential type of insurance coverage for construction companies and contractors. This type of insurance protects businesses from lawsuits over the quality of their work or the work of subcontractors they hired. When a company signs a contract with a client, they agree to provide a certain quality of work within a specific timeframe. If the quality of work does not meet the client’s expectations, they may file a lawsuit against the company. Professional liability insurance can help protect businesses from the financial consequences of such lawsuits.
Professional liability insurance is particularly important in the construction industry because of the high risk of errors and mistakes. Even the most experienced contractors can make mistakes, and these mistakes can lead to costly lawsuits. Professional liability insurance can help cover the legal costs associated with defending against such lawsuits, as well as any damages that may be awarded to the plaintiff.
The cost of professional liability insurance for construction companies and contractors varies depending on several factors, including the type of construction and contracting services offered, the level of experience and risk exposure in the field, and the coverage limits and deductibles chosen. On average, construction companies and contractors pay around $74 per month for professional liability insurance 1.
It is important for construction companies and contractors to carefully evaluate their insurance needs and ensure that they have adequate coverage to protect against potential risks and liabilities. Professional liability insurance is just one of the many types of insurance that construction companies and contractors should consider when evaluating their insurance needs.
Footnotes
Workers’ Compensation Insurance
Workers’ compensation insurance is a type of insurance that provides benefits to employees who suffer work-related injuries or illnesses. It covers medical expenses, lost wages, and other related expenses. In most states, workers’ compensation insurance is required for businesses with employees.
Construction is a physically demanding industry with a lot of opportunities for injuries. Workers’ compensation insurance protects contractors against losses caused by work-related accidents or illnesses. It also provides the employee with benefits to compensate for lost work and wages.
In addition to medical expenses, workers’ compensation insurance can cover other expenses related to an employee’s injury or illness. For example, it can cover rehabilitation costs, such as physical therapy or occupational therapy, and it can cover the cost of prosthetic devices or other medical equipment.
It is important for contractors to ensure that they have adequate workers’ compensation insurance coverage to protect themselves and their employees. Without adequate coverage, contractors may be liable for the cost of medical expenses and lost wages if an employee is injured on the job.
Commercial Auto Insurance
Commercial auto insurance is a type of insurance policy that covers vehicles used for business purposes. It provides protection for company-owned vehicles and equipment from damages from accidents, theft, and other incidents. This type of insurance is especially important for construction companies, as they often have a fleet of vehicles used for transporting equipment and materials to job sites.
Commercial auto insurance policies can vary in coverage and price, depending on the type of vehicles being insured, the number of vehicles, and the driving records of the employees. It is important to shop around and compare quotes from different insurance providers to find the best coverage and price for your business.
Some common coverage options for commercial auto insurance include:
- Liability coverage: This covers damages and injuries to other people and property if the insured driver is at fault in an accident.
- Collision coverage: This covers damages to the insured vehicle in the event of an accident.
- Comprehensive coverage: This covers damages to the insured vehicle from non-collision incidents such as theft, vandalism, and natural disasters.
- Uninsured/underinsured motorist coverage: This covers damages and injuries caused by a driver who does not have enough insurance to cover the damages.
It is important to note that personal auto insurance policies typically do not cover vehicles used for business purposes. Therefore, it is crucial for construction companies to have a separate commercial auto insurance policy to protect their vehicles and employees while on the job.
Contractor’s Equipment Insurance
Contractor’s equipment insurance, also known as contractor’s tools and equipment insurance, covers the contractor’s equipment and tools used in construction projects. This type of insurance policy provides coverage for the contractor’s equipment, including hand tools, power tools, and heavy machinery, such as bulldozers and excavators, in case of theft, damage, or loss.
Contractor’s equipment insurance can also cover the loss of or damage to rented equipment. This type of insurance is essential for contractors who rely on their equipment to complete their projects.
It is important to note that contractor’s equipment insurance may not cover the loss of equipment due to normal wear and tear or mechanical breakdown. Additionally, this type of insurance may not cover equipment used in hazardous activities, such as demolition work or blasting.
When selecting contractor’s equipment insurance, contractors should consider the value of their equipment, the type of projects they work on, and the level of risk involved in their work. Contractors can purchase contractor’s equipment insurance as a standalone policy or as part of a broader construction insurance policy package.
Overall, contractor’s equipment insurance is an essential type of insurance for contractors who rely on their equipment to complete their work. By providing coverage for equipment theft, damage, or loss, contractor’s equipment insurance can help contractors protect their business and minimize financial losses.
Pollution Liability Insurance
Construction sites can produce a variety of pollutants, which can be harmful to the environment and human health. Pollution Liability Insurance (PLI) is designed to protect contractors from the financial consequences of pollution incidents that occur during construction projects.
PLI covers the costs of cleanup, property damage, bodily injury, and legal defense costs resulting from pollution events. This includes pollution incidents caused directly by the contractor, as well as those caused by subcontractors or other parties working on behalf of the contractor.
PLI policies can be tailored to meet the specific needs of individual contractors. For example, some policies may provide coverage for mold, asbestos, or lead-based paint. Others may provide coverage for pollution incidents that occur during transportation or storage of hazardous materials.
It is important for contractors to carefully review their PLI policies to ensure that they have adequate coverage. This may involve working with an insurance broker or consulting with a legal professional. Contractors should also take steps to minimize their risk of pollution incidents by implementing best practices for handling and disposing of hazardous materials.
In conclusion, Pollution Liability Insurance is an essential type of insurance for contractors who want to protect themselves from the financial consequences of pollution incidents. By working with an insurance broker and implementing best practices, contractors can ensure that they have adequate coverage and minimize their risk of pollution incidents.
Builder’s Warranty Insurance
Builder’s warranty insurance, sometimes referred to as structural warranty insurance, is designed to protect the homeowner from any structural defects that may arise in a newly built property. This type of insurance is typically purchased by the builder or developer and lasts for a set period, usually around 10 years.
The coverage provided by builder’s warranty insurance varies depending on the policy, but it typically covers any defects that arise due to poor workmanship or materials. This can include issues with the foundation, walls, roof, and other structural components of the property.
It’s important to note that builder’s warranty insurance is not the same as homeowner’s insurance. Homeowner’s insurance covers damage to the property and its contents, while builder’s warranty insurance specifically covers structural defects.
In addition to protecting the homeowner, builder’s warranty insurance can also provide peace of mind to the builder or developer. By having this type of insurance in place, they can demonstrate to potential buyers that they stand behind their work and are committed to delivering a quality product.
Overall, builder’s warranty insurance is an important type of construction insurance that provides protection for both homeowners and builders. If you’re purchasing a newly built property, it’s important to ensure that the builder has this type of insurance in place to protect your investment.
Project-Specific Insurance
Project-specific insurance policies are designed to protect a specific construction project from unforeseen risks or losses. These policies can be purchased by the owner, contractor, or both parties. Project-specific insurance is essential for protecting against risks that may not be covered by other insurance policies.
Owner-Controlled Insurance Programs
Owner-controlled insurance programs (OCIPs) are insurance policies that are purchased by the project owner. OCIPs provide coverage for all contractors and subcontractors working on the project. This type of insurance is beneficial for the owner because it allows them to have more control over the insurance coverage and ensures that all contractors and subcontractors are covered under the same policy.
OCIPs typically provide coverage for general liability, workers’ compensation, and excess liability. The policy can also be customized to include additional coverage, such as environmental liability or professional liability.
Contractor-Controlled Insurance Programs
Contractor-controlled insurance programs (CCIPs) are insurance policies that are purchased by the contractor. CCIPs provide coverage for all subcontractors working on the project. This type of insurance is beneficial for the contractor because it allows them to have more control over the insurance coverage and ensures that all subcontractors are covered under the same policy.
CCIPs typically provide coverage for general liability, workers’ compensation, and excess liability. The policy can also be customized to include additional coverage, such as environmental liability or professional liability.
Overall, project-specific insurance is an essential component of any construction project. Whether it is an owner-controlled insurance program or a contractor-controlled insurance program, having the right insurance coverage can protect a project from unforeseen risks or losses.
Surety Bonds
Surety bonds are a type of construction insurance that protects the project owner from financial loss in case the contractor fails to complete the project as promised in the agreement. A surety bond is a three-party contract between a surety company, the project owner, and the contractor. The surety company is usually an insurance company that provides financial protection to the project owner in case the contractor fails to meet the contractual obligations.
Performance Bonds
Performance bonds are a type of surety bond that guarantees that the contractor will complete the project as per the contractual obligations. In case the contractor fails to complete the project, the surety company will pay the project owner the amount of the bond. The amount of the bond is usually a percentage of the contract amount. Performance bonds are typically required for large construction projects.
Payment Bonds
Payment bonds are a type of surety bond that guarantees that the contractor will pay all the subcontractors, suppliers, and laborers involved in the project. In case the contractor fails to pay any of the parties involved, the surety company will pay them on behalf of the contractor. Payment bonds are usually required for public construction projects.
Bid Bonds
Bid bonds are a type of surety bond that guarantees that the contractor who wins the bid will enter into a contract with the project owner at the bid price. Bid bonds protect the project owner from wasting time and resources if the winning bidder backs out. Bid bonds are usually required for public construction projects.
In summary, surety bonds are an essential type of construction insurance that protects the project owner from financial loss in case the contractor fails to meet the contractual obligations. Performance bonds, payment bonds, and bid bonds are the three main types of surety bonds used in the construction industry.
Frequently Asked Questions
What are the common types of insurance policies that contractors should maintain?
Contractors should maintain several types of insurance policies to protect their business from potential risks. The most common types of insurance policies that contractors should maintain include general liability insurance, workers’ compensation insurance, commercial auto insurance, property insurance, and professional liability insurance.
Which insurance policies are essential for residential construction projects?
Residential construction projects require several types of insurance policies to protect the contractor, the client, and the project itself. Builders risk insurance, general liability insurance, and workers’ compensation insurance are essential for residential construction projects.
How does course of construction insurance protect a building project?
Course of construction insurance, also known as builders risk insurance, protects a building project during the construction phase. This insurance covers damages caused by fire, theft, vandalism, and other risks that may occur during construction.
What are the key differences between general liability and professional liability insurances in construction?
General liability insurance covers bodily injury, property damage, and other liabilities that may arise during construction. Professional liability insurance, also known as errors and omissions insurance, covers the contractor’s work and any damages that may arise from errors or omissions in the work.
Can you list the top-rated insurance companies specializing in construction coverage?
Some of the top-rated insurance companies specializing in construction coverage include Zurich, Liberty Mutual, Travelers, and The Hartford.
How does insurance contribute to risk management in the construction industry?
Insurance plays a crucial role in risk management in the construction industry. By maintaining the appropriate insurance policies, contractors can protect themselves from potential financial losses due to accidents, property damage, or other liabilities. Insurance also helps contractors secure new projects by providing proof of coverage and minimizing risk for clients.