General Contractors Insurance Made Simple
General contractors insurance confuses a lot of buyers because the category covers two very different types of businesses. Getting the right coverage starts with knowing which one you are.
Farmer Brown has worked with general contractors across all 50 states for nearly 30 years. Here is how insurers look at this.
How insurance companies categorize general contractors
For insurance purposes, carriers split general contractors into two groups: paper contractors and working contractors.
Paper contractors manage projects from the office. They do not perform physical work on site. Instead, they charge a coordination fee and hire subcontractors to handle construction.
Working contractors are in the field. They self-perform more than 50 percent of the work with their own crew and subcontract the rest.
How the paper versus working split affects your insurance costs
General liability rates do not differ much between the two categories. What drives GL premium is the type of work, not who performs it. Roofing carries more liability exposure than plumbing, so roofing insurance costs more regardless of whether the contractor manages from a desk or works on the roof.
Workers compensation, however, tells a different story. Working contractors with employees in the field carry direct payroll exposure. Paper contractors who subcontract all physical work carry less of it, which typically brings workers comp costs down.
Why contractors buy general liability insurance
Most contractors carry GL coverage for one of three reasons. First, state law requires it. Second, clients demand it as a condition of the contract. Third, the contractor has business assets worth protecting and cannot absorb the legal costs of a major lawsuit alone.
That third reason should drive coverage decisions. Contract minimums and legal requirements set a floor. They do not tell a contractor how much protection the business actually needs.
How the additional insured endorsement lowers your premium
When a general contractor buys a GL policy, the carrier takes on the risk of defending and paying claims on that contractor’s behalf. The more risk the carrier holds, the more the contractor pays.
The additional insured endorsement shifts some of that risk to subcontractors. By requiring each sub to add the general contractor as an additional insured to their own policy, the general contractor’s carrier steps back when a subcontractor’s work causes a claim.
Here is a concrete example. A general contractor hires a plumber for a new build. The plumber leaves a valve loose, a pipe bursts overnight, and the finished interior floods. The general contractor did not cause the damage, but because they hired the plumber, their name goes on the lawsuit. If the general contractor is an additional insured on the plumber’s policy, the plumber’s carrier handles the defense and any judgment. As a result, the general contractor’s carrier pays nothing. Over time, that reduced claims exposure lowers the general contractor’s premium.
Require a current ACORD 25 certificate of insurance from each subcontractor confirming additional insured status before work starts.
Why paper contractors still need their own policy
Paper contractors often ask why they need their own GL policy if subcontractors carry the risk through additional insured endorsements. In practice, four problems arise when they skip it.
First, a subcontractor’s attorneys defend the subcontractor. If the general contractor and the subcontractor have conflicting interests in a lawsuit, the general contractor’s defense becomes secondary at best.
Second, shared limits mean divided coverage. For example, if a general contractor shares a subcontractor’s $1 million policy with other named parties, each party walks away with far less than $1 million in actual protection.
Third, most states require general contractors to carry their own liability coverage to operate legally.
Fourth, clients require it. Large clients push liability requirements down through the contracting chain. Without a separate policy, a general contractor often cannot win the work.
Getting your general contractors insurance priced
Farmer Brown works with carriers across all 50 states and can typically bind coverage within 24 hours. For contractors who want to see what their coverage costs first, a quote is available online.