Contractor General Liability Insurance protects contractors financially from amounts they become obligated to pay due to damages or medical payments because of bodily injury, property damage or personal/advertising injury to third parties occurring during the policy period caused by or relating to the contractor’s work. It is strongly recommended that Contractors maintain this coverage for their own protection and because contractors are often required to provide proof of such coverage to get accepted for a project.
How much does a contractor General Liability policy cost in California?
The cost for a Contractor General Liability policy typically ranges from $796 to $1,230. The cost of a policy is based upon the contractor’s classification, payroll, subcontractor costs, gross receipts and location.
| Payroll Tier | Average Policy Cost* |
|---|---|
| $0 Payroll | $790 - $1,050 |
| $1 - $30k Payroll | $925- $1,460 |
| $30k - $60k Payroll | $1,062 - $2,118 |
| $60k - $100k Payroll | $1,338 - $2,934 |
| $100k+ Payroll | $1,965 + |
Not all insurance carriers utilize the same underwriting criteria to determine the premium of a policy. Additional underwriting criteria that may or may not be utilized includes credit score, policy age, experience and number of years the insured has not made any claims. There are many additional coverages, deductibles, fees, taxes and exclusions that can be added to a policy which can affect the premium rate.
The policy coverage limits can also affect the price. A common misconception held by contractors is there is a large difference in price between a policy with a $1 million vs. a $2 million aggregate limit. Typically the variance in price is only around $15.00. Most third parties that require a contractor to have a general liability policy are looking for a $2 million aggregate coverage limit to get on the job. For this reason, we advise all contractors to carry $2 million in aggregate coverage.
Why does a contractor need General Liability insurance?
Contractors General Liability Insurance protects contractors financially from amounts they become obligated to pay due to damages or medical payments because of bodily injury, property damage or personal/advertising injury to third parties occurring during the policy period caused by or relating to the contractor’s work.
Contractor General Liability Insurance is often required by a contractor’s client (commercial, residential or a General Contractor if working as a sub-contractor) to ensure the financial capacity to pay is available in the event of a claim.
More and more contractor’s clients are requiring proof of a contractor’s General Liability Insurance coverage. California Contractors Insurance Services provides all contractors a Certificate of Insurance upon purchase of the policy that can be used as proof of insurance. Some contractor’s clientele want to be named on the policy as an “Additional Insured”. California Contractors Insurance Services can provide the necessary Additional Insured document upon request.
What does a contractor General Liability policy cover?
A Contractor General Liability policy covers third party claims from damages that arise from the operations of the insured contractor business. Coverage does not include faulty workmanship or damages to the insured’s work. Coverage applies to claims including bodily injury, property damage, product and completed operations, medical payments and personal and advertising injury. Below are descriptions of the coverages:
- Bodily Injury - Injury, sickness or disease sustained by a person, including death.
- Property Damage - Physical injury to tangible property, including all resulting loss of use of that property.
- Product and Completed Operations - Coverage is provided for Bodily Injury and Property Damage after a project is completed, but only covers work performed during the policy period.
- Medical Payments - Medical expenses are covered for bodily injury caused by an accident during the policy period. Coverage is typically limited to $5,000.
- Personal and Advertising Injury - Injury arising out of false arrest, malicious prosecution, wrongful eviction, use of another’s idea in an advertisement, copyright infringement, or publication of material that slanders, libels or violates a person’s right to privacy. Not common with contractor general liability claims.
Most often a policy will have coverage with limits of $1 million per occurrence, $2 million in aggregate and $2 million product/completed operations. Insurance companies can offer several variations of those limits. If additional coverage limits are required a contractor may purchase an Excess policy. The Excess policy will cover damages above the base General Liability policy’s max limits.
How do claims work for contractor General Liability insurance?
There are two types of general liability insurance based on what claims are covered: occurrence and claims-made. Occurrence policies cover claims that occur during the policy period regardless of when the claim is filed. Claims-made policies cover claims only when both the occurrence and the resulting claim happen during the period the policy is in force. Claims made policies are typically not accepted by third parties as a valid form of General Liability coverage. As such, we recommend contractors carry occurrence coverage and will focus on the claims process with these policies.
The claims process starts with an occurrence that must happen during the policy period. Occurrence is defined as an accident, including continuous or repeated exposure to substantially the same general harmful conditions. An occurrence may be discovered while the work is done or long after work has completed. The occurrence will trigger a claim against the contractor which may be reported to the insurance carrier by the insured contractor or the aggrieved party.
A claim typically may be reported up to ten years following the policy period on an occurrence policy. A sunset clause would limit the reporting period, thus reducing the time frame in which a claim could be reported. It is a best practice to have an occurrence policy with the ten year tail for claim reporting.
The insurance company has a duty to defend the insured contractor but has discretion to settle any suit. If a claim is made, the contractor is responsible for paying the deductible, and the insurance company will cover the balance of damages and/or medical payments up to the policy limits.
What is a premium audit and what occurs during it?
When a contractor applies for Contractor General Liability Insurance, they are expected to accurately complete the application to the best of the contractor's knowledge including providing projected information for the upcoming policy term . The information submitted on the application, including projections for the upcoming policy term, is utilized by the insurance company to properly rate the policy based on the risk exposure. During the course of a year, a contractor’s business may change and the exposure for the insurance company may increase or decrease. The insurance company conducts a premium audit to account for these changes. The audit questions are similar to the application and may go into depth in areas where the insurance company discovers a discrepancy between current operations vs. the original application.
Insurance companies may conduct premium audits at anytime from one week after the policy is bound, up to the end of the policy term. If a claim is made against the policy, the insurance company is highly likely to conduct an audit.
A contractor may owe or be owed premium based on any material changes discovered during the audit from the application responses. The insurance company will invoice the insured for the additional premium amount due. Unpaid additional premium required due to an audit may be sent to collections. Also, the contractor risks the insurance company canceling the policy and denying coverage of a claim if the contractor fails to pay additional premium when required.
What other types of coverages are required of contractors in California?
All licensed California contractors are required to carry a $25,000 contractor license bond. Certain contractor licenses may require a $25,000 Bond of Qualifying Individual, a $100,000 LLC Employee/Worker Bond, or a Disciplinary Bond depending on their license status. Contractors may also be required by the owner of a project to provide a bid, performance and payment bond, often referred to as Contract Surety Bonds, on a job by job basis. All contractors with employees are required to carry Workers’ Compensation coverage.
