General Liability Insurance covers your business from third-party claims of property damage, personal injury, and advertising injury.
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As a contractor, subcontractor, or independent tradesman, the risks of injury or property damage are high in your line of work. To make sure your business is protected from liability due to accidental injury or damage, look to General Liability Insurance.
What is General Liability Insurance?
General Liability Insurance, or Commercial General Liability (CGL), provides financial protection in a wide variety of scenarios where your business causes accidental harm to another person or their property. If your business is sued for a cause covered by your insurance, the insurance company will pay for your legal defense and also cover any settlements or judgments against your company, up to the policy limit.
What does General Liability Insurance cover?
General Liability Insurance provides coverage for your business against unintentional third-party injury or property damage. Standard CGL policies typically cover third-party bodily injury, property damage, and personal and advertising injury.
Bodily injury coverage protects your company if it causes physical injury to another person. An important exclusion is employee injury, which would be covered under workers’ compensation insurance.
- One of your employees accidentally leaves behind a piece of piping at a client’s home. The homeowner trips on the piping, resulting in injury and large medical bills, in addition to a loss of income from being unable to go to work. The homeowner sues your business for causing this injury.
Property damage insurance covers you for damage to others’ property caused by your business. An important exclusion is property belonging to others that is under your care, custody, or control (e.g., a client’s kitchen you’ve been hired to remodel), which can be covered under an additional endorsement, often known as voluntary property damage. Voluntary property damage provides coverage for unintentional damage to others’ property while that property is under your care, custody, or control.
- While repairing a client’s ceiling, one of your workers drops a hammer from ceiling height, shattering an expensive custom wall mirror. The client sues your company for the cost to replace the mirror and repair the wall.
Products and completed operations coverage protects you after your work is done. If any of the work your company has completed ends up causing bodily injury or property damage, your company may still be liable. An important limitation of products and completed operations insurance is that you will only receive coverage if your policy is active when the bodily injury or property damage occurs.
During a cabinet installation, your employee fails to properly secure one of the cabinet attachments to the wall. The cabinet works fine for a while, but two months after installation, the cabinet falls off the wall, injuring a secretary and damaging the wall. The secretary sues your business for bodily injury liability, and the client also sues your business.
Personal and advertising injury liability coverage provides for specific types of non-physical injuries that your business might cause to another person or business. Contracting businesses may see this most commonly in cases of slander, libel, copyright infringement in advertising, or publications that violate privacy.
Medical payments to others is a type of coverage that provides for medical payments in instances where someone is injured on your business premises or as a result of your business activities. Unlike bodily injury coverage, which only pays if your business is found to be at fault, medical payments to others pays for accidents whether or not your business is to blame.
What doesn’t General Liability Insurance cover?
An important exclusion from General Liability Insurance is auto liability. Since vehicle crashes are a common cause of liability claims, they are not covered by Commercial General Liability Insurance. To properly cover your liability for vehicles used for work purposes, you’ll need commercial auto insurance.
As a contractor, you may own or operate mobile equipment, like a backhoe or forklift, that could possibly be used on public roads. An important question is whether or not that equipment is considered an auto, and whether or not that equipment would be covered under a Commercial General Liability Policy.
The answer depends on whether or not your state requires auto liability insurance for the mobile equipment. If your state does not require auto liability, then the equipment is considered mobile equipment and will be covered by the Commercial General Liability policy. If your state does require auto liability, then the equipment will need to be covered under commercial auto insurance.
Many insurance policies exclude subcontractors from your liability coverage. To be fully covered, you’ll want to make sure that all subcontractors you hire have liability insurance with the same limits of liability that you have.
Ask to see a subcontractor’s certificate of insurance, which proves that they have insurance coverage, and make sure the subcontractor adds you as “Additional Insured” on their insurance policy, which obligates the subcontractor’s insurance company to cover you if you are sued for work performed by the subcontractor.
If the subcontractor you hire is unable to obtain liability insurance, you can add them as “Additional Insured” under your Commercial General Liability policy, which may require an additional premium. Doing so will cover the subcontractor for work that they perform for your company, but not for work they perform for other clients.
Is General Liability Insurance required?
Commercial General Liability Insurance is not legally required in most cases. In some states, liability insurance is required as a condition of getting a license for some contracting professions such as plumbers and electricians. Alternatively, some states may require surety bonds in order to obtain a license.
It is common for clients to require liability insurance before they will do business with a contractor. If a client hires a contractor and an accident occurs, the client may be on the hook to pay for the damages if the contractor does not have insurance. Therefore, many clients will want to see proof of insurance before hiring your company.
Additionally, if your business serves as a subcontractor to a general contractor, you may also be required to have insurance by the general contractor. This is because the general contractor will be liable for any damages caused by their subcontractors, and if the subcontractor is uninsured, the general contractor will have to pay for any damages or injuries caused.
How much does General Liability Insurance cost?
The average cost of General Liability Insurance for contractors is $1,074 per year, based on small businesses with under $500,000 in yearly sales. For contractors in particular, it’s important to note that the cost of insurance coverage often increases proportionately (or more than proportionately) to revenue. Additionally, some types of contractors, such as general contractors or roofing contractors, have higher risk exposures and may have premium costs of 2-3X the average or more.
Pricing for General Liability Insurance is based upon the unique risks your business faces. Insurers consider factors such as:
- Business size
- Number of employees
- Claims history
Businesses with higher risks will have higher premiums than those deemed lower risk. For example, an amusement park will probably have higher liability premiums than a graphic design business. Premiums also rise as you increase the limits of insurance. Different insurance companies have different models for rating risks, so it is worth comparing pricing across different insurers.
In order to get an accurate estimate on pricing, it’s best to get a quote from a reputable insurance company. Below we’ve highlighted a few of our trusted partners who offer General Liability Insurance:
|Provider||General Liability||Business Interruption||Business Owner's Policy||Commercial Auto||Commercial Crime||Commercial Property||Cyber Liability||Employment Practices Liability||Professional Liability||Product Liability||Workers' Compensation|
How much General Liability Insurance do I need?
For most small businesses, a $1 million per occurrence and $2 million aggregate limit in Commercial General Liability is appropriate. To supplement this liability, a commercial umbrella policy may also be appropriate to provide strong protection for your business.
Contracting and construction work can be full of risks, from accidents that cause injury to others to mishaps that may damage others’ property. General Liability Insurance can provide the protection you need to defend against third-party claims of property damage, personal injury, and advertising injury. Accidents can happen at any time, and making sure your company secures CGL coverage can be a critical investment for your business’s future.