Construction is a team effort. Several companies are often involved in any given project, all helping to bring it to life. The general contractor must plan, orchestrate and manage all aspects of the job, from budgeting to planning to hiring crews. There is also a group of subcontractors that are performing the actual construction work. When it comes to insurance needs, many of the same rules apply to both parties, yet it’s often the general contractor that sets the pace.

General contractors have a huge responsibility on their shoulders. They assume responsibility for the actual build work itself as well as just about everything that happens on a jobsite. With that responsibility comes an enormous amount of liability. How can general contractors manage this risk all while ensuring their company, employees and property are adequately protected? 

Insurance for General Contractors

Insurance not only protects businesses; it’s often a prerequisite by many employers before work can even be started. What’s more, each contract usually comes with its own terms and conditions. There may be a variety of stipulations set forth or certain requirements depending on the state or municipality where the work is being performed. 

It’s important for a general contractor to ensure the subcontractors they hire all have proper insurance, including any subcontractors hired by those subcontractors. If they don’t, they could find themselves paying for several different types of lawsuits or claims. But beyond that, general contractors also need to have their own policies in place, including: 

• General Liability. This piece of coverage is a necessity. A general liability policy protects a business against property damage claims, bodily injury and job completion mistakes. While subcontractors should also have their own general liability policies, in the event of a claim or lawsuit, all parties are likely to be sued. It’s critical for general contractors to have their own policy to ensure they’re protected should an accident or unforeseen incident occur. 
• Workers’ Compensation. Construction is risky—and workplace accidents can occur at any time. Workers’ compensation is an essential piece of coverage that provides wage compensation and assistance with medical bills for on-the-job injuries. It helps to offset some of the unavoidable risks that employees face by protecting the business in the event a lawsuit is filed by an injured or ill employee. 
• Commercial Auto. Commercial vehicles require separate auto insurance coverage since they’re exposed to more risk than personal vehicles. This coverage gives general contractors both liability and physical damage protection for their fleet of vehicles such as cars, trucks and vans. It does tend to have higher coverage limits to account for the additional protection. 
• Umbrella. Does a general contractor really need an umbrella policy if it already has liability coverage? Simply put, depending on the type of job the company is undertaking, one policy may not be enough. For example, if a contractor takes on a new project and the contract states that the business in charge of the build must carry $2 million of general liability yet that general contractor only has $1 million of coverage, this is an instance where an umbrella policy can make up the difference and provide the extra coverage needed. 
• Commercial Property. What about a general contractor’s physical office space and its contents? Those need to be protected as well. Commercial property coverage safeguards physical property such as tools, computers, signage, furniture and more in the event of a fire, broken pipe, storm, theft or vandalism. 
• Cyber. Technology has changed the way we do business. In today’s world, cyber risk is real, and it affects businesses in all industries and of all sizes. While some people might think this is an unnecessary coverage for a general contractor it’s quite the opposite. Cyber insurance typically covers a business’ liability for a data breach involving sensitive customer information such as credit card numbers, account numbers, drivers’ license numbers and more. 
• Employment Practices Liability Insurance (EPLI). An astonishing 60% of businesses will be sued by an employee at some point in time. However, most don’t have the right coverage in place to protect themselves in these types of situations. EPLI is purchased separately from other policies and protects businesses against employee lawsuits including wrongful termination, sexual harassment, discrimination, privacy issues, wage and hour disputes, pregnancy, illegal background checks and more. 
• Bonding. General contractors know the process of licensing and permitting very well. When working for various federal, state and local municipalities a variety of different bonds are often required to ensure the expected services are completed according to regulation. There are a few different types of bonds that general contractors (and really, all contractors) should be familiar with, including:

• Surety Bonds. An agreement where one party (the surety) guarantees to another (the owner or oblige) that a third party, such as a contractor or principal, will perform the duties of a contract in accordance with contract documents or fulfill the obligation according to the agreement.
• Construction Bonds. An agreement guaranteed by a third party (insurance company or surety) to finalize construction in accordance with the terms of the contract should a contractor fails to perform specific tasks as outlined. 
• Commercial Bonds. Often required by commercial business entities such distributors, suppliers, etc., federal, state and local municipalities can require various commercial bond obligations. These help to guarantee individual compliance with certain rules or legal requirements. 

A TRANSFER RISK AGREEMENT

All contractors want to limit their liability and control insurance costs. General contractors should ask subcontractors to have the same insurance coverages, effectively pushing liability down the chain. This process is known as risk transfer. Risk transfer protects general contractors by placing responsibility for losses, claims and damages on to the subcontractor, rather than taking on that liability directly. 

As a general contractor it’s important to ensure the business has well-rounded protection. Insurance needs—particularly for companies in the construction industry—can be complicated. Working with a knowledgeable insurance agent who understands the nuances of the industry is critical to helping general contractors understand what they need, what to require from their subcontractors and how to minimize their risk and keep the company safe.