Liability Insurance for Contractors: What It Covers, What It Doesn’t, and Why It Matters

When you’re running a small contracting business, every project comes with its share of risks. From accidental property damage to jobsite injuries, the unexpected can happen fast, and the costs can add up even faster.

With a general liability policy, contractors can help protect themselves and their businesses from financial setbacks tied to third-party claims. In this guide, we’ll explain everything you need to know about liability insurance for contractors, so you can focus on the work at hand while knowing you’re prepared for life’s “what-ifs.”

Key Takeaways

• Contractor liability insurance protects against accidents, property damage, and lawsuits.
• Coverage differs from personal insurance and a business owner’s policy (BOP).
• Many clients and contracts require liability insurance for contractors.
• Policies typically cover property damage, bodily injury, legal defense, and completed operations.
• Exclusions include employee injuries, contractor tools, and professional errors.
• Premiums depend on payroll size, project type/location, and license requirements.
• Key documents include certificates of insurance and additional insured endorsements.

What Is Contractor Liability Insurance?

Contractor liability insurance is a type of general liability business insurance that helps cover costs if your work causes injury to someone else or damage to their property. It’s important to note that there isn’t a specific policy called contractor liability insurance; it’s a term used to describe general liability insurance.

This coverage provides a financial safety net if a client, vendor, or bystander files a claim or lawsuit related to your work. Without it, even a small accident could lead to large out-of-pocket expenses that threaten your business.

General liability insurance coverage is different from other policies you may carry. While a Business Owner’s Policy (BOP) typically combines general liability coverage with protection for your business property, such as an office space or building, it’s generally designed for business with a fixed location.

Contractors, on the other hand, can extend their general liability policy to cover tools and equipment through a tools and equipment floater (inland marine coverage). Personal insurance—such as your home or auto policy—doesn’t apply to claims that come from your contracting work.

Why Contractors Need Liability Insurance

Contractors need liability insurance because even a routine job can lead to costly surprises. A single accident, like a client slipping on your worksite or property damage caused during a repair, can result in lawsuits and expensive claims. Liability insurance helps cover those costs so you’re not paying out of pocket.

In many cases, carrying liability insurance isn’t optional. Clients, contracts, and even local regulations often require proof of coverage before you can start a project. Having the right policy in place keeps you compliant and gives clients confidence in your professionalism.

What Does Contractor Liability Insurance Cover?

Liability insurance for contractors covers common risks contractors face on the job. While every policy is different, it typically includes coverage for:

• Property Damage: Helps pay for repairs or replacement if you accidentally damage a client’s property while working.
• Bodily Injury: Covers medical costs if a third party gets hurt due to your work.
• Legal Defense: Helps with attorney fees, court costs, and settlements if you’re sued over a covered claim.
• Completed Operations: Provides protection if problems arise after a project is finished, such as a repair that later causes damage.

What’s Not Covered by Contractor Liability Insurance?

It’s equally important to understand what contractor liability insurance won’t cover. For these risks, you’ll need different types of policies:

• Employee Injuries: Injuries to your own workers are handled under workers’ compensation insurance.
• Damage to Your Own Property or Tools: Contractor liability insurance only applies to third-party property; your own equipment would require separate coverage (usually through a BOP).
• Professional Mistakes: Errors in design, advice, or specialized services may call for professional liability insurance.

Factors Influencing Contractor Insurance Premiums

The cost of contractor liability insurance can vary from one business to the next. Several key factors influence how premiums are calculated:

• Payroll: The size of your payroll often plays a role in determining your premium. More employees typically mean more risk exposure, which can increase costs.
• Nature of Projects and Job Location: The type of work you perform and where you do it also matter. Jobs in areas with stricter regulations may come with higher premiums.
• Business Licenses and General Contractor License Requirements: Maintaining valid business and contractor licenses is usually required for your coverage to remain effective. These licenses also tie into compliance with local regulations, which can influence your eligibility and costs.

Essential Insurance Documentation for Contractors

When taking on new projects, contractors are often asked to provide proof of insurance. The most common way to do this is through a Certificate of Insurance (COI), which shows the details of your liability coverage. This certificate is typically shared with a certificate holder, such as a client or project owner, to confirm that your policy is active.

Keep in mind that a certificate holder is not an additional insured. An additional insured is a person or organization added to your policy who receives some of the same liability protections you do. For example, a client may require additional insured status to ensure they’re covered if a claim arises from your work.

Protect Your Contracting Business with Liability Insurance through GEICO Insurance Agency

From accidents on the jobsite to unexpected claims after a project is finished, even the most careful contractors can face situations that threaten their bottom line. Contractor liability insurance offers protection for your finances, reputation, and long-term success.

Don’t leave your small contracting business unprotected. Call GEICO Insurance Agency today to find the right coverage for your needs.