Even the smallest project may include dozens of workers, complex and costly equipment, exacting requirements with little room for error, and potentially catastrophic risks of injury.
In this article, we explore different t ypes of insurance commonly found on the job site, what they cover, what they don’t, and how other professionals can help navigate the insurance landscape.
Most insurance policies provide help with a claimed loss up to the policy’s limits and provide for attorney’s fees and other legal costs. However, the types of claims various kinds of insurance cover can vary greatly. Some examples:
GENERAL LIABILITY INSURANCE
Sometimes called commercial general liability insurance or CGL, it provides protection from third-party property damage, bodily injury, and other types of personal injury claims. CGL is one of the most common types of insurance that contractors carry. Many contracts require CGL coverage, and it helps to insulate against risk of accidental injuries and damage caused by the contractor’s work.
What’s typically not covered: Most CGL policies exclude intentional or illegal acts. CGL policies also typically do not provide coverage for injuries to a contractor’s own employees, or damage to their own property or equipment. They also usually don’t cover strictly financial losses—like delay costs, liquidated damages, or other consequential costs of an accident.
PROFESSIONAL LIABILITY / E&O INSURANCE
Like CGL, E&O insurance protects a contractor from third-party claims arising out of mistakes in the contractor’s work. A key distinction is that Errors and Omissions (E&O) insurance typically provides coverage against the strictly financial losses not covered by CGL.
What’s typically not covered: Like CGL, E&O insurance typically doesn’t cover situations covered by other types of insurance—such as bodily injury and property damage covered by CGL. E&O also typically excludes intentional or illegal actions. E&O insurance is often trade specialized, so what’s covered for a contractor varies based on a contractor’s specialty, and policies generally exclude coverage for work outside a contractor’s typical scope.
BUILDER’S RISK INSURANCE
Builder’s risk insurance typically protects the building itself, as well as materials, supplies, and equipment on a job site. Typically, builder’s risk insurance is carried by the owner or the general contractor on a project but would include subcontractors and others as additional insureds. Builder’s risk is generally seen as a form of property insurance, and therefore similarly covers damages from fire, storms, theft, vandalism, and other similar acts. Some builder’s risk policies are “all risk,” meaning they cover many different types of claims unless they are specifically excluded.
What’s typically not covered: Many builder’s risk policies exclude “consequential losses,” such as delay damages, acceleration costs, and disruption effects. They may also exclude defects from or in the work itself, including the cost of repairing or replacing work, regardless of whether attributable to the materials, the work, or the design.
WORKERS’ COMPENSATION INSURANCE
Workers’ compensation insurance covers a contractor’s own employees for on-the-job injury or illness including medical costs, rehabilitation costs, lost wages, and more. Most states require companies with employees to carry workers’ compensation in some form.
What’s typically not covered: Usually workers’ compensation only provides coverage for a contractor’s own workers while they are at work. Whether a policy might cover seasonal or temporary workers or a subcontractor’s employees can depend on the insurance policy and state law on these issues. As workers’ compensation insurance is typically required by state law, what’s covered can vary as greatly as the state laws that govern them.
OCIP AND CCIP
Sometimes called “wrap insurance,” Owner-Controlled Insurance Programs (OCIP) and Contractor Controlled Insurance Programs (CCIP) are special insurance programs for larger projects that allow an owner or general contractor to offer insurance for all subcontractors, usually to the minimum requirements of project contracts. Typically, these programs include CGL and workers’ compensation insurance and may also include builder’s risk, E&O, and other coverage.
What’s typically not covered: OCIP and CCIP packages are often customized to a particular project. While they are designed to cover most of a project’s participants for most of their insurance needs, coverage and exclusions can vary greatly. Carefully reviewing an OCIP or CCIP package can be critical to determining if a contractor may have additional insurance needs beyond what’s included in the OCIP / CCIP.
MORE OPTIONS
In addition to these common forms of insurance, many contractors find additional insurance necessary. These might include:
Inland marine Insurance, which typically covers materials and equipment in transit to a site.
Cybersecurity insurance, which may provide a range of coverage including ransomware attacks, phishing, data breaches, and more.
Performance bonds and subcontractor default insurance, which provides protection in the event that a contractor or subcontractor defaults on a project.
Pollution liability insurance, which typically provides coverage of bodily injury or property damage caused by hazardous materials—often even after a project is complete.
With so many different forms of insurance, selecting the right mix may seem daunting (and expensive). Many contractors find choosing a trusted insurance broker an important first step in their insurance selection process. Many brokers also work with multiple insurance companies and can help a contractor find coverage that meets their needs and budget.
Contractors should also consider involving an attorney when determining their insurance needs. An attorney can review contract documents to determine gaps in risk allocation and help a contractor better choose, negotiate, and understand the policies.
Involving counsel early also helps to ensure familiarity with notice and claims handling procedures. This familiarity can be vital as failing to follow the insurer’s process may lead to a claim being delayed or denied.
It is a reality that even one mishap on a project can lead to tens of thousands of dollars in legal fees, months or even years in litigation, and lawsuits with claimed damages far exceeding the contract value. Choosing the right insurance can mean the difference between a potentially company-ending risk and being covered and moving on to the next job.
about the authors
Dixie T. Wells is a partner in the Greensboro, North Carolina, office of Ellis & Winters LLP. She represents clients in lawsuits involving engineering issues, higher education law, complex commercial transactions, and products liability. She is a member of the Construction Law and Litigation Committee of the International Association of Defense Counsel. She can be reached at dixie.wells@elliswinters.com. Chris Flurry is an attorney in the Raleigh, North Carolina, office of Ellis & Winters LLP. He focuses his practice on construction law and commercial contract disputes. A Marine Corps veteran and son of a brick mason, he is a member of the Associated Builders and Contractors of the Carolinas. He can be reached at chris.flurry@elliswinters.com.