While Bonding Solutions specializes in surety bonds only, we are part of the insurance industry and are required to continue our education, carry proper state and individual insurance licensing. We have thousands of clients in the construction industry, and we thought it would be useful to provide some insurance-related information for our clients from time to time. This article is meant to inform/assist contractors with the standard insurance requirements to operate.
The construction industry is a field with inherently risky projects. The job sites are always full of contractors, staff, machinery, tools, and equipment necessary to get the work done. All of that brings a higher risk of incidents, damages, and injuries, which is why construction companies need to obtain many insurance policies. The law also mandates construction firms to hold construction insurance policies for protection in accidents and unwanted situations.
Because the construction industry is complex and includes a wide range of projects, most companies can’t cover the entire business with just one contract or insurance. Depending on the size of the construction business, the nature of a project, and business requirements, a company might need to obtain different policies. However, some of them are required regardless of these circumstances, and we made a list of mandatory insurance construction companies must carry in most cases.
General Liability Insurance
General liability insurance is also known as commercial insurance and is crucial for protecting the business. It helps people protect their companies from claims of bodily harm and property damage, especially lawsuits in case of accidents. General liability insurance covers a wide range of situations, including poor work performance and on-the-site injuries.
Construction companies must carry this insurance because the construction site is a busy and active place known for incidents. Workers may get injured accidentally, and the blame can fall on the shoulders of the company. The same applies to mistakes that can occur during the projects. The policy will protect the company from all the damage caused to the property by the workers themselves. Therefore, general liability insurance is mandatory for different businesses for protection against all kinds of claims.
We should mention, however, that some things might be excluded from the general liability insurance. It’s because insurance companies need to protect themselves from covering certain risks. Thus, make sure to double-check what the policy contains before getting it and extend the coverage if needed.
Builders Risk (Course of Construction) Insurance
Builder’s risk insurance or course of construction (COC) insurance covers buildings and other structures while under construction. It’s temporary insurance necessary only during the construction period covering potential damage and loss on the job site. Most COC insurance policies cover the following property types:
- Building materials
- Temporary structures
- Outdoor fixtures
- Lawns, trees, and plants
The most common types of construction projects requiring the builder’s risk insurance are dealing with residential and commercial property remodeling and construction. The policy mostly protects against theft, vandalism, weather damage, explosion, and fire. Most insurers also offer premium coverage that includes more options for some extra cash.
Workers’ Compensation Insurance
Workers’ compensation insurance protects both the employer and the employee in case of illness and injury on the worksite. The insurance should cover all the medical expenses, missed wages, recovery costs, and other expenses related to the injury. Because the construction industry requires employees to work in risky situations and environments, construction companies need to obtain this insurance. Most US states even require construction companies to hold workers’ compensation insurance for legal business operations.
The insurance company typically issues custom-tailored workers’ compensation insurance to suit each particular company, project, and risk on the job site. The requirements and obligations can vary a lot, depending on the working conditions and the job’s nature. There’s no one universal insurance policy that can cover all possible situations for every business out there.
Inland Marine Insurance
Inland marine insurance served as coverage for ocean-bound materials and vessels in the past. Today, it covers a wide range of property, but it mainly applies to tools and equipment. Here are some things that are usually covered by inland marine insurance:
- Tools and equipment such as hammers, drills, saws, grinders, cutters, breakers, wood, metal, and more.
- Clothing and supplies, including workings suits, protective glasses, gloves, etc.
- Leased or borrowed equipment.
- Computer equipment and data such as laptops, tablets, phones, and more.
All these things are covered by insurance when damaged on the job site or during transportation. The policy usually compensates for theft and damage that occurred due to weather disasters as well.
This is where we can assist! Construction companies might also need to obtain a surety bond. Bonds can cover the bid or guarantee a contract’s performance, including payment of vendors and subs. Also, license and tax bonds are required in many states. Here are some of the surety bonds construction companies may be required to obtain:
Contractor License Bond
This is a surety bond required by law for individuals who want to become contractors. It guarantees that a contractor will comply with laws and regulations in the respective municipality or state. The contractor license bond serves as protection for the general public that the contractor will operate appropriately per the state licensing laws.
These bonds guarantee compliance with contracts or construction projects and can come in several forms.
- Bid Bonds. Ensure valid bid proposals on projects and financial support.
- Performance Bonds. Guarantee project realization within particular standards.
- Payment Bonds. Guarantees that the contractor can complete payments to workers, suppliers, and other associates.
- Maintenance Bonds. Protect the project owner from poor work performance and are used as warranty bonds.
- Subdivision Bonds. Guarantee completion of public improvements with local guidelines and requirements, mainly the laws in a particular city or county.
- Supply Bonds. Ensure that suppliers will deliver materials and other supplies as agreed.
Commercial Auto Insurance
Construction companies often use many vehicles on the job site, from cars to trucks. These vehicles are heavily used and can get involved in accidents. For that reason, construction companies must hold commercial auto insurance that would cover the vehicles and equipment they use. The policy covers the expenses of vehicle and equipment repair and medical costs in case workers get injured.
Mandatory Insurance Construction Companies Must Carry
In summary, it’s essential to remember that construction insurance is necessary and required by the law in most cases. State and contractual standards/requirements can vary; therefore, we highly recommend that every construction company check the specific requirements for operating appropriately within their contract and state.
To make sure you have the necessary insurance for opening a new business or performing a project, you should contact a licensed insurance agent. While we only write surety bonds, Bonding Solutions is also here to guide you through the process of finding support for any insurance need. Our team can assist you in finding an agency that specializes in construction. We are just a phone call or click away!