Can your business survive a lawsuit or injury compensation claims? These types of questions rarely pop up in the mind of a diligent, hardworking contractor like you. After all, you put in all the work for your customers, and in turn, they trust you to take care of what matters to them.
But whether you’re fixing the garbage disposal, installing a light bulb, repairing a bridge, or constructing a bridge, anything can happen. That garbage disposal unit you just finished repairing might ground the client’s digits. The roof you renovated may leak causing thousands of dollars in damage.
Such unforeseen accidents are the very reason why every contractor needs general liability insurance. Insurance takes care of unforeseen and unfortunate events in our personal and professional lives.
What is General Liability Insurance?
If you didn’t know what general liability insurance is, now you have a vague idea. It’s the insurance you take out to cover accidents you might have while working for a client.
In terse legal terminology, general liability insurance is a type of insurance that covers you and your company in case another party brings a legal claim as a result of injuries and damage to property resulting from them contracting you or your company.
Do Contractors Really Need General Liability Insurance?
“The chances of me or my company bungling things up are astronomical. I don’t think I need general liability insurance.”
More than 20,000 businesses who faced compensation claims amounting to a few billion dollars. Companies that had general liability insurance had an insurance cushion of up to $1 million per lawsuit and $2 million in annual coverage. Companies that didn’t have liability insurance had it rough. With the typical liability lawsuit for a general liability claim costing about $75,000 to defend and settle, it wouldn’t be much of a stretch to conclude that a significant number of businesses without general liability insurance went out of business.
What’s even more alarming is the fact that 35% of all general liability claims end up in a lawsuit. Paying $75,000 to settle every 4 out of 10 claims is a burden for any business. Taking out liability coverage, which costs less than $1,000 annually, is a smart move, wouldn’t you agree?
Can an Independent Contractor be Held Liable for Damages?
Yes, they are!
The law expects independent contractors to hold the same standards as large firms. At the same time, the law imposes the same legal obligations on independent contractors and large firms. As an independent contractor, you’re liable when you damage the client’s property or when you cause the client physical injury as a result of your work.
Independent contractors who’ve been in business for a while know that if you build it, they will sue. That’s why most of them take out general liability cover, even if they fix computers for a living. Statistics show that at least 4 independent contractors end up in court defending a liability claim in the next decade. The 4 have to shell out $75,000 to defend and settle the claim. With most independent contractors earning $90,000, one lawsuit is enough to put them out of business, if they haven’t taken out general liability insurance for contractors.
That’s not the only reason why independent contractors need to take out liability cover.
Most of the time, clients demand an independent contractor to have general liability cover before signing on the dotted line. If a client works with an uninsured contractor, they’ll have to assume responsibility for any damage or injury caused by the work of the contractor. As you’ve already seen, such claims amount to thousands of dollars. Clients are exactly eager to shoulder the burden. That’s why they are reluctant to work with uninsured contractors.
The law governing some industries also requires independent contractors to carry general liability coverage. Independent contractors working in the construction industry, for example, are required by law to take out general liability insurance before working on a project.
What Are the Benefits of Being an Additional Insured?
Before we get to the benefit, you might be wondering “What in the world is an additional insured?”
Well, the status of an additional insured is largely connected to general liability insurance. It’s a type of policy that covers individuals or groups that were not initially included. That affords the new parties to a contract the same cover as the contractor who took out the general liability insurance. If you’re working with a business, you might be asked to apply for additional insurance status so that in the event of any legal claims arising directly from your work, the business won’t be held liable.
What are the benefits of getting the additional insured status?
For starters, you pay lower premiums. When you apply for the additional insured endorsement, insurers typically tend to charge lower premiums because they figure that the risk associated with the new party as marginal.
Another advantage of additional insured status is that it creates trust between the two parties. When a company asks you to do some construction job on its commercial properties, additional insured coverage gives your client the peace of mind that should you be unable to handle any legal claim arising from the work, they’re covered.
Some people will point out a couple of downsides of additional insured status like having an extra party chasing after the same pot of money or the possibility of an increase in legal costs should a claim end up in court. These downsides are far outweighed by the benefits of additional insured status.
Who’s Responsible for Addition an Additional Insured?
Contractors apply for an additional insured in most cases since they take out general liability in the first place. Also, the law obliges contractors working in some industries to add their clients to their general liability cover. For instance, independent contractors are often required in their contracts to add clients to their general liability cover. However, if a client already has a general liability cover, they may add you as an additional insured.
How Do Independent Contractors Get General Liability Cover?
Now that you know what general liability insurance is and why you need it, let’s see how you go about getting the coverage.
You might have guessed the first way of getting general liability cover. Clients with a general liability policy can add you to their policy as an additional insured. That means, for the period you’ll be working with the client, their general liability policy covers you. However, having a client add you to their general liability coverage is more expensive compared to the next method.
The second method to get a general liability policy is buying it from a reputable and reliable insurance provider. After purchasing the cover, ask the insurer to print out a certificate you can present to clients. This is the most cost-effective way of getting general liability cover.
Whichever path you follow, both offer the same protection to you and your client in case your work causes damage to a third-party.
Does General Liability Insurance Cover Breach of Contract?
So far, we’ve only touched on general liability insurance covering any claims that arise as a direct consequence of work done for a client. Does it cover any other type of damage? Before getting insurance for contractors, most entrepreneurs want to know what else their policy covers. Does it cover a breach of contract that might cause a loss for the client?
As a contractor, you’re required to meet all contract requirements. That means achieving project deliverable on time, sticking to the agreed budget, and using the right equipment and materials. But imagine a situation where you cannot fulfill these requirements. Will the policy cover you?
To know if you’re covered, read through the terms of the policy. Most general liability policies don’t provide coverage for breach of contract if you didn’t explicitly ask your insurer to include it in the policy. To make sure you’re covered should you breach the contract, ask the insurer for specific general liability insurance.
Which Liabilities Are Not Covered by General Liability?
Any damage to your own property or the property of the business is not covered under a general liability policy. That also means personal injury claims, auto accidents involving you or your employees during the course of work, and any illegal acts committed by you or your employees during the fulfillment of a contract are not covered. You’ll have to take out specific insurance for contractors, apart from the last case though. No insurer will give you coverage for losses accrued as a result of illegal activities.
That’s pretty much what you need to know about general liability insurance. Every contractor needs to take out the policy because judgments, settlements, and legal fees tend to spiral out of control in damage claims. A single case can cost hundreds of thousands of dollars to settle. That’s a sum most independent contractors cannot afford in the current economy. Protect yourself and your business by taking out a general liability insurance cover. Feel free to contact us if you have any questions about general insurance