As a contractor, having general liability insurance is essential - but it's equally important to understand what your policy might not protect against. Many contractors discover coverage gaps only after facing a claim, which can be financially devastating for their business.
Understanding the Basics of General Liability Insurance
General liability insurance for contractors typically covers third-party bodily injury, property damage, and advertising injuries. While this forms a crucial foundation for your business protection, several critical risks might fall outside your policy's scope.
Common Coverage Gaps That Could Put Your Business at Risk
Professional Mistakes and Design Errors
While your general liability policy covers accidents and injuries, it typically won't cover losses resulting from professional advice or design work. For example, if your architectural recommendation leads to structural issues, your general liability insurance likely won't help.
Employee Injuries
Many contractors assume their general liability coverage extends to employee injuries. However, work-related employee injuries fall under workers' compensation insurance - a separate policy entirely that's often required by law.
Tools and Equipment
Standard general liability policies don't typically cover damage to or theft of your tools and equipment. This common misconception can lead to significant out-of-pocket expenses when equipment is stolen from job sites or damaged during transport.
Cyber Risks
In today's digital age, contractors increasingly use project management software and digital payment systems. However, general liability insurance typically doesn't cover cyber threats or data breaches that could compromise client information.
Your Personal Vehicle in Business Use
Using your personal vehicle for business purposes might create coverage gaps between your personal auto insurance and general liability policy. This oversight could leave you exposed during job site visits or material transport.
Critical Questions to Ask About Your Coverage
To help you evaluate your current protection, consider these questions:
- Does your policy cover completed operations?
- What exclusions apply to your specific trade?
- How does your policy handle subcontractor incidents?
- What coverage limits do you have, and are they sufficient?
FAQ’s
What's the difference between general liability and professional liability insurance?
General liability covers third-party bodily injury and property damage, while professional liability protects against claims of professional negligence or mistakes in your work.
How much general liability insurance do contractors need?
Coverage needs vary based on project size, contract requirements, and risk exposure. Most contractors should carry at minimum $1 million per occurrence and $2 million aggregate coverage.
Does general liability insurance cover defective workmanship?
Generally, no. While it covers damage resulting from your work, it typically doesn't cover the cost to repair or replace defective work itself.
Are tools and equipment covered under general liability insurance?
No, you'll need separate inland marine or contractor's equipment coverage to protect your tools and equipment.
What happens if my subcontractor causes damage?
Your general liability policy might provide some coverage, but it's crucial to verify your subcontractors carry their own insurance and are properly licensed.
