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Most states require your contractor company to have Contractors Liability Coverage to work on construction projects. However, some contractor business owners think that this is ridiculous. As with wearing masks during the coronavirus pandemic, they reckon it should be a matter of choice. There are many insurance policies that are not mandated, like Builder’s Risk Insurance. So why is Contractors Liability a requirement?


Contractor Liability Insurance is a grudge purchase

Perhaps you don’t see any benefit from a grudge purchase like insurance coverage until faced with a claim. It is good to remember that we live in a litigious society here in the States. In other countries, lawsuits and claims are less common. Here, you can be sure that if something goes wrong, you’ll get sued. And so much can go wrong on your building site.


The saying is: it isn’t that contractors will face a lawsuit, it is when you’ll face one. We’re talking about anything from bodily injury owing through property damage. Claims can run into millions of dollars. This can wipe you out financially.


What does underinsured mean?

If having no insurance for your construction business is the worst case scenario, then a close second is underinsurance.


What this means is when you, as a policyholder, have insufficient coverage in the event of a claim. In other words, this is when your contractor liability coverage exceeds the maximum amount paid out by the policy.


We all know that your contractors liability insurance is not designed to eliminate all financial losses from claims. However, it should prevent significant financial hardship. The full cost of claims from incidents such as bodily harm or property damage would have to come out of your business. Very few (if any) contractors can manage this. But what if your construction business is insured, but it isn’t enough?


Underinsurance is (very) expensive

There are 2 main consequences. Both are expensive:

  1. Only a portion of the claim paid: Obviously this will leave you out of pocket. Your insurance company will apply the rule of average.
  2. Your coverage is cancelled: Your policy is voided and the premiums refunded to you, leaving you with zero coverage.


 Common Contractor Liability Coverage mistakes

Here’s a checklist of 4 reasons your contractor business may be underinsured. If your business is underinsured because of any of these, then it is easy to fix.


  1. You think Contractor Liability Insurance is too expensive
  2. Things have changed in your business and you haven’t alerted your insurance company. For example, you are working on bigger projects, or you have invested in expensive building equipment or admin software.
  3. You aren’t sure of what insurance you need, so you bought the one that sounded right.
  4. You didn’t realise that your Contractor Liability coverage should be tailored for the specific needs of your company.


Fix your Contractor Liability Coverage before it becomes a problem

John Brown President Farmer Brown Insurance (888) 973 0016

John Brown – President

Underinsurance in the construction industry is common. Now that you know some of the consequences you may be in a hurry to up your coverage. To do this quickly, request a quote from (888) 973-0016. We know the ins-and-outs of contractor insurance and will get you the best deal. Ask us now.

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