Construction teams can be all-in-one organizations or firms that hire external help. Each business model requires specific types of coverage to protect workers, clients, and third parties. Understanding the difference between the insurance needs of general contractors vs. subcontractors is vital for sustainability.
Here are essential terms and subtle differences you must know to understand their unique insurance needs.
How General Contractors Differ from Subcontractors
The role of a general contractor for construction projects involves planning and overseeing the overall work, the details of which are often carried out by subcontractors. The general contractor is responsible for managing the project from its inception through completion. Construction management involves hiring the crew and ensuring client needs are met. It’s up to the general contractor to maintain their own insurance while ensuring the hired subcontractors have proper insurance, including separate liability policies.
What Is Protected by General Liability Coverage
General liability insurance covers claims when an individual is injured or property damage occurs at the worksite. Even though contractors and subcontractors need their own liability coverage, it’s possible for all parties to face litigation in the event of a third party injury or property damage.
It’s common for contractors to try to limit their liability by making sure subcontractors carry liability limits similar to general contractors insurance. A Transfer Risk Agreement allows the general contractor to transfer risks to subcontractors, who will then be responsible for complaints filed about losses or damages. This stipulation applies to subcontractors that hire other subcontractors as well. Ultimately, this arrangement requires contractors and subcontractors to choose partners carefully and only work with such insurance agencies who have a thorough understanding of the construction industry.
Another type of Liability Insurance is known as Employment Practices Liability Insurance (EPLI), which protects a business from claims filed by employees. About 60 percent of all businesses end up facing litigation from employees due to various issues such as discrimination, compensation disputes, and wrongful termination, among others.
Importance of Workers’ Compensation
Due to the dangerous tasks involved in construction work, your company needs workers’ compensation to protect itself against on-site claims by employees. This coverage pays for the medical bills of employees who suffer from work-related illnesses or injuries.
Other Related Insurance
• Commercial Auto –
Commercial vehicles can involve dangerous assignments, so they require a different type of auto insurance coverage than personal vehicles. These policies usually have higher coverage limits to ensure sufficient protection for operating company cars, trucks, and vans.
• Commercial Property –
Tools and equipment used by a contractor need protection from potential damage caused by a natural disaster, theft, or vandalism. This type of coverage also protects office space, computers, and other business assets.
• Cyber –
In the age of digital communication, even the most technologically advanced companies can suffer security breaches that compromise confidential data such as credit card numbers and other customer information. Cyber insurance will ensure adequate coverage in the event of such data breaches.
Additionally, subcontractors should carry pollution insurance in case complaints are filed about the cleanup process. Spilling toxic chemicals, for example, can lead to lawsuits to pay for medical costs. Subcontractors should further be covered for Errors and Omissions (E&O) in the event of failure to deliver contracted services or negligence. One may also consider umbrella insurance, which is a broad policy that provides extra coverage where needed.
Licensing, Permits, and Bonding
A general contractor must be compliant with licensing and permit issues and meet obligations specified in contracts. When contracting with local, state, or federal government agencies on projects, the contractor is usually required to invest in various types of bonds as guarantees. Surety Bonds guarantee the contractor performs contract duties. Construction Bonds and Commercial Bonds have similar guarantees to meet contract terms and legal requirements.
If your construction company hires third-party workers, make sure they are covered by subcontractors insurance and, at the same time, maintain your own sufficient coverage.
Are you looking for an experienced construction company in the Bay Area? Contact the experts at Proforma Construction to learn more about how we can resolve all your construction needs.