Am I a small contractor?
No business is small to the person that owns it. That said, insurers tend to design products around different-sized businesses. The definition of “Small Contractor” varies by carrier, but they generally have less than 3 years in business, less than $100,000 in payroll, and for general contractors, less than three house-starts annually. Some carriers thrive at this level, others avoid it. At Schulz Brundage, we love small contractors and have coached many through the process of going from small to big.
Why does a small contractor need insurance?
You need insurance for two reasons. First, you want to protect your hard-won assets against the threat of loss and lawsuits. Second, your customers will force you to have it. We coach our clients through the decision-making process to determine what and how much is appropriate.
Who asks a small contractor for proof of insurance?
While some homeowners may ask about insurance, only the most informed will verify it. Many will see, ”Insured, Licensed, & Bonded”, on the side of a van and figure they’re good to go. When properly insured, it’s an opportunity to set yourself apart from the crowd by proving to the homeowner that you have insurance. As long as you’re paying for it, you might as well brag about it, whether they ask for it or not.
Commercial entities, managed properties, condo associations, and general contractors require proof of insurance. First, they want your insurer to pay for your mistakes. Second, it will also cost them at audit, if you don’t have your own coverage. Commercial customers will require certain kinds of insurance, with specific limits and endorsements. Meeting insurance requirements requires serious consideration of both the risk and cost. On a daily basis, we coach our small contractor clients through the process of determining whether or not their customers’ requirements are worth meeting.
What kind of insurance is required when working for commercial entities or as a subcontractor for a general contractor?
General Liability: This is always required. It promises to pay for legal defense and damages should you, your team, or your subs hurt someone (bodily injury), wreck something (property damage), or cause personal or advertising injury (like libel, slander, defamation, false arrest, or certain privacy violations). Your customers will require you to verify that your insurance will address a problem that you caused. Without proof of your coverage, your customer will be charged an additional premium at audit.
Workers Compensation: This is another must-have. This policy promises to pay statutory benefits for workplace injuries to employees and anyone else that you are paying, unless they have their own insurance. Coverage applies, on a no-fault basis, if a worker is injured in the course of employment and as a result of employment. The legal and financial consequences of violating the requirement to provide Workers Comp benefits are severe. The entity that hires you will require proof that you have your own policy, if you don’t have it, the general contractor that you’re working for will pay more at audit.
Auto Liability: This is a very common requirement that can be tough to meet, especially if your business doesn’t own any autos. Commercial Auto policies list what kind of autos are insured by the policy. Insurers use Liability Symbols to denote which autos are covered by a policy.
The most common Auto Symbols are 7, 8, & 9, which correspond to Specified Autos, Hired Autos, & Non-Owned Autos. The Symbol that covers all bases is Symbol 1 or “Any Auto. When one of our construction contractor clients doesn’t own autos, but needs to prove auto coverage, we provide a policy which includes Symbols 8 & 9, Hired & Non-Owned Autos. Hired Autos means an auto that you hired, like a delivery van or cement truck. Non-Owned Autos might be personally-owned autos used in the business, like your personal truck that’s used to haul material to the job site.
Umbrella Liability: For bigger construction jobs with more sophisticated risk management, Umbrella policies are another common requirement. Umbrella coverage is an additional policy that promises to pay when “underlying” policies like General Liability, Auto Liability, and Employer’s Liability are maxed out. We refer to an Umbrella policy as the “utility player”, because it can come into play for multiple policies in the event that the limit on any one of them runs dry.
What else should I know about insurance for small contractors?
One extremely common requirement is Additional Insured – Primary & Non-Contributory endorsement. Additional Insured means that the job owner / GC is covered by your policy, for claims related to you. “Primary” means that your policy will be the first to pay for any problems that you or your team may cause. “Non-Contributory” means the job owner’s or GC’s policy won’t contribute to defense and damages.
Equally common is a requirement for a Waiver of Subrogation. Subrogation is the process by which one insurer asks another insurer to reimburse it for a claim that it paid. For instance, if a sub causes property damage that the GC had a role in causing, the sub’s insurer would subrogate against the GC’s policy, asking it to pay for a portion of the damages. A Waiver of Subrogation prevents your insurer from doing that.
No one can be an expert on everything, which is why small contractors need a team. We strive to coach you through insurance decisions, so that rather than an expensive impediment, insurance becomes a tool for achieving goals. Our team is here to provide timely access to reliable advice and service, so that you can make the right decisions.
