For contractors and businesses that are into construction in California, the risk of accidents happening is always a present threat. As much as you observe safety precautions and all, it is something that you cannot prepare for. You can reduce the possibility of an accident happening but you may not be able to truly eliminate it.
Asides observing safety measures to reduce the possibility of any incident, a big part that must be taken care of is reducing the liability your business can be exposed to. There are different types of insurance policies but as a contractor, you will do well to have general liability insurance for contractors and we we’ll explain why in this article.
What is General Liability Insurance?
This is a kind of insurance cover that provides financial protection for contractors in a situation where an accident, property damage, or bodily injury happens to a third party in relation to the contractor’s work. If this happens and your company is sued, the insurance company covers the cost, settling any damages, judgment, or medical payments against the company up to the limit of the policy.
There are two types of general liability; an occurrence policy, which means the event occurred during a certain period, and a claims-made policy that covers the claims irrespective of when the incident happened.
It is also possible that businesses add other individuals or companies under contract with them to the policy. This is referred to as “additional insured”. It is recommended that contractors have this kind of coverage; one for their protection and also because it is usually a requirement to get a project.
What Kind of Coverage Does a General Liability Provide?
Most times, considered a form of comprehensive business insurance, general liability does not fully cover all the risks a business might face. It covers third party claims faced by a business and not faults due to workmanship or damage to the work of the insured. Below are some of the things that can be included in a claim.
Property Damage
This includes physical damage to tangible property and all losses associated with the use of the property. It does not however include a property that belongs to others but is under your custody or care. Such a property has to be covered under another endorsement which is referred to as voluntary property damage.
Bodily Injury
This protects your California business in a situation where physical harm, sickness, injury, and even death to a third party occurs as a result of your operations. It is important to note that this does not cover injury to an employee. This is covered under another form of insurance called the worker’s compensation insurance.
Personal and Advertising Injuries
This provides for non-physical injuries caused by your business to another person and to their business. This can include cases of libel, slander, copyright infringement, wrong eviction, etc.
Medical Payments
This covers medical payment in cases where a person is injured while on your premises or due to your activities. It is slightly different from bodily injury in that bodily injury only pays if you are at fault but medical payments can be paid to other people even if your company is not to blame. It is usually limited to $5,000.
Product and Completed Operations
This protects a company when their project is completed and if whatever they have done causes bodily harm or damage to property. It covers only claims that happen when the policy is still active.
You can see here for more on all of these and more.
Purchasing a General Liability Insurance
Purchasing contractor insurance can be a little tricky. You need to know what you are purchasing as there are different tiers of policies available depending on how large your California business is. The policy you buy is priced for premium in two ways:
Annual Gross Income
This is based on cost per $1,000 of revenue. The policy starts with you paying a projected amount and each year, your company is audited. The more your revenue, the more you pay. If however your revenue is less than projected, you generally do not get a refund.
Owner, Employee or Subcontractor Costs
This is more common and the premium is based on your payroll including the cost of employees and subcontractors whether you have a certificate naming you as additional insured or not. It is worthy of note to know that the cost per $1,000 for an insured subcontractor is around 20% of an uninsured one (uninsured subcontractors are usually considered as employees). This is because for insured subcontractors, since you are on their policy when there is a claim, you are not liable. The risk has been transferred to the subcontractor.
You should also determine the kind of liability insurance that you are buying whether it is per occurrence policy or claims made policy. Finally, you can also purchase excess liability coverage to cover any claims that exceed the limit of your policy. You can read about both kinds of policies here https://www.thebalancesmb.com/claims-made-versus-occurrence-policies-462581#.
Conclusion
There is always a potential for risk accidents happening when you are on a project. Getting an insurance cover in California places you in a good position to handle any claims that might come against your company. It will also help you secure projects as it is typically a requirement for getting hired.