Insurance Considerations For a New Construction Business
Many construction firms require both property and general liability coverage as well as surety bonds – similar to insurance policies – in order to meet local and state regulations. Surety bonds provide assurances of compliance for contractors.
Insurance carriers that specialize in specific industries make it easier for businesses to locate policies tailored specifically to their risks and needs. For instance, there are insurers who provide builders risk and contractors pollution liability policies specifically.
Property Insurance
Construction equipment and vehicles require property insurance policies that offer adequate protection from loss or damage due to fire, theft or other insured perils. Your policy may cover your assets at their actual cash value or replacement cost (based on current construction prices); though the latter option will increase premiums but reduce financial strain from having to rebuild from scratch.
Your new construction business will need a professional website, business cards and marketing materials in order to attract clients. Seek assistance from your local chamber of commerce or Small Business Development Center in creating these materials.
Your construction business must register with its state of operation and obtain a license before seeking an employer identification number (EIN), also known as tax ID from the IRS. An EIN serves as identification for tax purposes by assigning it a unique nine-digit number that uniquely identifies your business entity.
General Liability Insurance
Contractors should carry general liability insurance to cover damages to third-party property and bodily injuries sustained during their business activities. Small contractors usually need only policies with limits of $1 million per incident and $2 million aggregate coverage, while larger construction companies may require excess liability policies for optimal financial protection against multiple claims.
Key factors when it comes to purchasing general liability policies for construction businesses include whether the policy covers mobile equipment, data breaches and reputation repair. Furthermore, contractors should invest in errors and omissions insurance to cover any allegations of negligence in performing contracted services.
Some construction businesses may benefit from wrap-up insurance, which combines liability and commercial property policies into one policy. Other ways of lowering premium costs include additional insured endorsements or waiving of subrogation; performance bonds that guarantee completion can reduce premium costs up to 50 percent.
Additional Insureds
Construction project owners frequently require additional insured (AI) provisions on commercial general liability (CGL) policies for their project, often to protect Owner, lender, architect and others who require AI coverage from contractors working on their behalf from claims resulting from lower-tier work performed on site. Providing this risk transfer tool protects upper tier entities against claims related to lower tier activities.
Recently, a New York court decided that in order to qualify as an Additional Insured (AI), contractual privity must exist between the policyholder and those being added as insureds. This decision creates a potential minefield for those trying to add parties as additional insureds while restricting how a policyholder might provide liability protections to other entities.
CG2038, an additional insured endorsement, may be suitable for adding upstream parties as additional insureds; however, CG2010 provides coverage for completed operations as well as ongoing ones; therefore a combination may be needed in order to meet all AI requirements that a contractor might face.
Commercial Auto Insurance
if your business uses cars, trucks, vans or trailers designed for public roadway use as part of its daily operations, commercial auto insurance is something to consider. A typical policy typically provides collision, comprehensive and specified perils coverage along with equipment onboard the vehicles as well as reimbursement if an accident should occur.
Many states mandate liability coverage for bodily injury and property damage sustained while driving for business purposes, with medical payments and uninsured/underinsured motorists coverage often being mandated as well. A commercial policy offers higher policy limits to protect your company in case of lawsuit or catastrophic loss, with hired/nonowned auto coverage providing protection when employees drive personal or leased/rented cars on business related errands – an essential safeguard since personal auto policies don’t usually offer sufficient coverage in this situation.