Insurance for Construction Companies

Construction is one of the highest risk industries in the country. The Bureau of Labor Statistics reports that the industry records more than 1,000 workplace fatalities each year and accounts for roughly 20% of all U.S. workplace deaths. Property damage, equipment theft, vehicle accidents, and hazardous materials also create exposure that can affect cash flow and long-term stability. Most contractors carry multiple insurance policies because no single policy covers every type of loss. Each policy addresses a different risk. Some coverage is required by law or contract. Other policies are optional, depending on the type of work performed. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

What Is Construction Insurance?

Construction insurance is not a single product. It is a group of policies designed to respond to different situations. One jobsite incident can involve an employee injury, property damage, and a third-party claim at the same time. Separate policies respond to each part of the event. Contractors often carry several types of coverage to address the full range of risk.

Most policies do not cover intentional acts, fraud, normal wear and tear, and poor workmanship. Because exclusions vary by policy and carrier, contractors should review coverage carefully to understand what is protected and not protected by the policy.

Types of Construction Insurance 

• Workers’ Compensation — Workers’ compensation is required in most states. It covers employees who are injured or become ill because of the job. Benefits include medical costs, partial wage replacement, disability payments, and death benefits. It’s important to note that falls account for about 40% of construction fatalities. Other common causes for injury include heavy equipment accidents and workers struck by vehicles or falling materials. Because these risks are part of everyday jobsite work, workers’ compensation is one of the most important policies a contractor carries.
• General Liability — General liability protects the company when someone outside the business claims injury or property damage caused by the company’s work. This can include a pedestrian walking past a jobsite, a client visiting the project, or damage to a neighboring property. In many states, general liability coverage is required to have an active contractor license. Even when it’s not required by state law, it is expected by most clients and lenders.
• Commercial Auto — If a construction company owns or operates commercial vehicles, it must carry liability coverage for those vehicles under state law. Commercial auto insurance covers injuries or deaths caused by company vehicles, damage to other vehicles or property, and related legal costs. Roadway crashes remain a leading cause of workplace fatalities, and OSHA reports that roughly one in four struck-by deaths involve a construction worker, often tied to trucks or heavy equipment.
• Builder’s Risk — Builder’s risk insurance covers damage to the structure under construction. Common causes include fire, severe weather, vandalism, and some instances of theft. Some policies may also cover on-site tools, equipment, and materials. For additional coverage in this area, contractors may want to consider inland marine insurance. This coverage applies when those items are stored off-site, moved between jobs, or in transit. Equipment and material theft losses are estimated at $1 billion annually.
• Professional Liability (Errors and Omissions) — More contractors are entering the design-build business, making professional liability insurance more necessary in recent years. It generally covers claims related to design and engineering errors.
• Subcontractor Default Insurance — On large commercial projects, a general contractor may be managing hundreds of subcontractors. This insurance may cover financial loss when a subcontractor does not complete the agreed-upon work or meet project specifications.
• Pollution Liability — Not every contractor needs separate pollution coverage, but if the work involves hazardous materials, it’s worth considering and may even be required by the contract. Pollution liability insurance helps cover cleanup costs and claims tied to contamination or chemical exposure. General liability policies usually do not cover these types of losses. 
• Umbrella Insurance — Umbrella insurance provides additional coverage when claims exceed the limits of other policies. Policies range from $1 million to $10 million in coverage at relatively affordable rates.
• Wrap Insurance — Wrap insurance programs provide coverage for general contractors and subcontractors. It typically includes workers’ compensation and liability coverage under a single policy. 

Frequently Asked Questions 

Who is required to carry construction insurance?

Requirements depend on state law and the contract. Most states require workers’ compensation once a company has employees. General liability and commercial auto coverage are often required by project owners, general contractors, or lenders before work begins.

How much does construction insurance cost?

The cost depends on several factors, including company size, claims history, type of work, and location and size of the project. Higher-risk trades, such as roofing, demolition, steel erection, excavation, or concrete, typically have higher costs than other types of trades.

Why are there so many types of policies?

Construction risks often overlap. A single accident could involve an injured employee, damaged property, and a third party who files a claim. Workers’ compensation would address the employee’s injury. General liability would respond to the third-party claim. Commercial auto may apply if a vehicle was involved. If the total claim exceeds those limits, umbrella insurance may provide additional coverage.

Contact Us

A comprehensive risk management program includes different types of insurance to minimize potential loss. Because coverage requirements and exposures change as a company grows, periodic review is recommended. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.