General Liability Insurance Coverage for Contractors Explained

General liability insurance coverage for contractors pays when your work injures someone who isn't your employee or damages property that isn't yours, including after the job is done. It also pays for your legal defense if you're sued over it. It's the policy almost every general contractor, property owner and commercial landlord will ask you to prove before you set foot on the site. Most of the confusion starts in the contract, so this guide starts there too and works back to what the policy actually does.

What the insurance section of a construction contract usually asks for

Open almost any subcontract, commercial owner agreement or remodeling contract with a property manager and you'll find an insurance clause or a separate insurance exhibit. Remodelers and small builders often skim it, sign, and then call their agent the day before mobilization. That's backwards. The clause tells you exactly what your general liability (GL) policy has to do, and some of those things take an endorsement (a written change to your policy) that your insurer has to add.

The requests show up in nearly the same order every time:

• A certificate of insurance (COI), the one-page form showing your policies, dates and limits
• Minimum limits per occurrence (per accident) and in aggregate (the most the policy pays in a policy year)
• The general contractor, owner or property manager named as an additional insured
• Coverage that applies after your work is finished, often called completed operations
• Wording that your policy is "primary and noncontributory"
• A waiver of subrogation
• Proof of workers' comp and commercial auto alongside the GL

Each line points to a specific part of your policy. The table below shows where.

The coverage behind that certificate

A commercial general liability (CGL) policy, the standard form most contractors carry, has three main parts. The Insurance Information Institute describes them as Coverage A for bodily injury and property damage, Coverage B for personal and advertising injury, and Coverage C for medical payments. Coverage C pays small medical bills on a no-fault basis, which means there's no defense or legal liability coverage attached to it the way there is under A and B.

The U.S. Small Business Administration sums up general liability as protection against financial loss from bodily injury, property damage, medical expenses, libel, slander, defending lawsuits, and settlement bonds or judgments. On a job site, that translates into everyday accidents. A homeowner trips over your extension cord in the middle of a kitchen remodel. A section of scaffold tips into a neighbor's car. Your crew cracks a client's granite countertop while setting cabinets.

Completed operations is the piece builders tend to underrate. Your exposure doesn't end when you pull the dumpster. If a deck you framed gives way at a backyard party a year later, or a railing you installed fails, the claim comes in long after the final invoice. That's exactly why GCs and owners want completed operations coverage, and why many want to be covered for it as additional insureds.

You can buy CGL on its own, inside a business owner's policy (BOP), or as part of a commercial package policy, according to the Insurance Information Institute. If your limits fall short of what a contract demands, a commercial umbrella or excess policy can sit on top.

Certificate holder or additional insured: what the GC is really asking for

Mixing these two up is a common reason a GC sends a certificate back. A certificate holder is simply the party that receives a copy of your COI. GEICO's contractor guide spells out that a certificate holder is not an additional insured; an additional insured is a person or organization added to your policy who gets some of the same liability protection you do.

Typing the GC's name into the box at the bottom of a COI doesn't put them on your policy. The base CGL policy only covers the named insured, as Vertikal RMS explains, and additional insured status comes through endorsements that offer different levels of protection. Some cover only ongoing operations, meaning while you're still working. Others cover completed operations. A subcontract that asks for both usually expects to see both endorsements, and a careful GC will ask for copies of the endorsements themselves, not just the certificate.

If you're the general contractor, flip all of this around. Your subs' policies are your first line of defense when a framer or electrician causes damage. Collect a COI and the additional insured endorsement from every sub before they start, track expiration dates, and don't let anyone on site with a lapsed policy. Ask your own agent how your policy treats uninsured subcontractors, because that answer can change both your claims picture and your premium.

States that build general liability into your license

Licensing rules on general liability vary by state, so check yours before your next registration or renewal. A few states put the requirement right into the licensing rules.

In Washington, the Department of Labor & Industries makes GL part of contractor registration. Its registration page asks for a certificate of general liability insurance for at least $250,000 before you can register. The same page says your bond and insurance must use your exact business name and the department must be listed as a certificate holder on your liability insurance. General contractors also need a continuous contractor surety bond of $30,000, and specialty contractors need $15,000.

In California, the rule applies to LLCs. The Contractors State License Board requires LLC licensees with five or fewer people listed as personnel of record to carry liability insurance with a cumulative limit of at least $1 million (B&P Code section 7071.19). Beginning January 1, 2014, that policy has had to come from an insurer licensed by the state or an eligible surplus line insurer. The board also says specific general liability information has to appear on an LLC's home improvement and service and repair contracts. The requirement changes for LLCs with more people listed, so check the CSLB page for your setup.

In other states, check with your state licensing board and your city or county permit office. A state minimum is a floor. Commercial GCs and property owners routinely ask for more than the state does, and the contract number is the one you have to meet to get paid.

Where a contractor's GL policy stops

General liability covers harm to other people and their property. It doesn't cover your own people, your own stuff or, in most cases, your own work. According to Contractors Liability, the policy doesn't cover injuries to your own employees, damage to the work itself, or your tools and equipment. Those risks fall to workers' comp, builders risk and inland marine (tools and equipment) coverage.

A few more gaps catch builders off guard. The Insurance Information Institute says pollution coverage under a standard CGL is very limited, which matters if you do demolition, mold work or anything involving fuel, solvents or lead paint. Accidents involving your trucks belong on a commercial auto policy. Design mistakes on design-build jobs usually fall under professional liability, which the SBA describes as coverage for malpractice, errors and negligence. And GL doesn't pay because a project ran late or you missed a contract deadline.

How much coverage contracts ask for, and what it costs

Your limits should come from three places: what your state or city requires, what your biggest clients write into their contracts, and what you could actually lose on your largest job. Commercial owners and larger GCs often ask for more than a homeowner ever will. If contracts keep asking for more than your GL limit, an umbrella or excess policy layered over the GL is one way to reach it.

Price varies widely by trade, location and history. As one published data point, Insureon reports that general contractors in Washington who buy through it pay an average of $115 per month for general liability. Your quote will move with the kind of work you do (roofing and structural work price differently from interior finish work), how much you subcontract, your payroll or revenue, where you work, and your claims record. Adding additional insured, primary and noncontributory, or waiver of subrogation endorsements can affect the price too, so ask before you build insurance costs into a bid.

Before you sign the next subcontract

Most coverage problems for contractors start at signing, not at the claim. Run through these with your agent while you're pricing the job:

• Send the insurance exhibit first. Forward the contract's insurance section to your agent before you submit the bid, so you know whether your policy meets it or needs changes.
• Ask about blanket additional insured. Find out whether your policy adds clients automatically when a written contract requires it, or whether each one needs a separate endorsement.
• Confirm completed operations. Ask whether your additional insured wording covers both ongoing and completed work, and for how long after the job.
• Check the extras. Ask whether primary and noncontributory wording and a waiver of subrogation are included or available.
• Look for exclusions that hit your work. Ask whether your policy limits coverage for the jobs you actually do, such as residential, multi-unit, roofing or work at heights.

Then check the paperwork itself. The named insured on the COI should match your license and contract exactly, and the policy dates should run past the end of the job. If you hire subcontractors, ask how your insurer treats subs who don't carry their own coverage.

Keep a copy of every COI and endorsement you send, and calendar your renewal date. On many contracts, a certificate that expires mid-project can hold up payment until a current one shows up. For coverage questions beyond GL, the Contractors guides and Coverage types guides cover the other policies that usually travel with it.