As a construction contractor, you need to juggle a lot. From dealing with clients to managing projects, materials and subcontractors, it’s a lot of work. To add to this, you face unique risks compared to other small business owners. The construction industry is inherently risky at times, and having the right contractor insurance can keep your business running if something goes wrong.
But what kind of contractor insurance is needed in Canada? What does it cover? And how much does it cost? It’s a confusing space, so we’re here to break it all down and help you navigate your business insurance purchase.
Here is everything you need to know about getting contractor liability insurance in Canada:
What is contractors insurance?
Contractors insurance is commercial insurance designed to protect independent contractors, subcontractors, and other businesses providing general contracting services from the risks associated with their industry. It’s generally a bundle of a few different types of insurance policies. Still, its most basic type can often be called contractors liability insurance or contractors errors and omissions liability insurance.
This type of insurance covers a range of potential risks, from damage to third-party property to injuries on the job site and stolen tools. It can give business owners the financial security and peace of mind they need if they face a loss or any claims.
Who needs contractor insurance?
Any independent contractors and business owners that work in general contracting industries such as construction, general contractors, roofing contractors, electrical, plumbing, framing, painting, HVAC and renovations. Depending on your province and the type of construction company you operate, and whether you have full-time employees, you likely need to carry contractors insurance by law. In any case, you’ll be asked to provide proof of an insurance policy for most construction projects.
Aside from being required to have insurance, it just makes good business sense. You keep yourself covered in the event of an accident that causes a loss to you or somebody else.
What kinds of insurance should a contractor have?
As we mentioned, getting a contractor insurance generally means getting a policy that includes a few different types of coverage options depending on your specific business operations and setup.
Commercial General Liability Insurance
Often shortened to just General Liability Insurance or CGL, this is a construction insurance policy that protects most contractors. Think of all the clients, employees and contractors you deal with daily. If the actions of you or your business cause bodily injury or property damage to any of these third parties, your insurance will cover you from legal costs or damages awarded. Similarly, if your employees suffer from bodily injury or property damages, a CGL policy would typically offer coverage. Also, if you rent an office, a good CGL policy will cover you if any issues occur.
Tool & Equipment Insurance
Tools insurance does exactly what it says on the tin. It covers your tools and equipment from loss or damage. Whether you’re a business owner or an independent contractor, your tools are likely the most important part of your business. Without them, you wouldn’t be able to get the job done. Keeping them covered just makes sense.
Pollution Liability Insurance
Whether you need pollution liability or not depends on the risks you face. If you are often dealing with materials or scenarios that could cause pollution, then you likely need this kind of coverage option. For example, if you deal with sewage systems, lead, demolition, oil, etc.
This covers property that you own until it is installed for your client. A great example of this is a plumber installing a new boiler, an installation floater would cover the boiler from damage or loss until it’s installed and in the hands of the client. Sometimes Installation Floaters are confused with Builder’s Risk (Course of Construction), but that policy type covers the entire project and not a specific piece of equipment.
Commercial Property Insurance
If you own a business premise you’ll likely want to get commercial property insurance as it protects the building itself and its contents. From computers and office furniture to bricks and mortar. There’s some overlap here with equipment insurance; ultimately, they’re very similar, just covering different things.
Professional Liability Insurance
Often called Errors and Omissions, this is generally needed when you provide professional advice or services to your clients so its more common with industries like accountants and lawyers. Professional liability coverage can be needed in cases when your CGL policy wouldn’t cover you, for example, if you advise your client to install something that goes on to cause issues.
Commercial Auto Insurance
As you would expect, this only really applies if you own or use a vehicle for work. But since most construction businesses involve moving between job sites, its probably quite likely you do have some form of work truck.
In some cases, your CGL insurance might actually cover you if you have a “non-owned automobile”, in other words if you lease or rent your work vehicle. Check with your insurance company to understand if this is included by default or not.
Depending on the industry and size of the projects you’re working on, you may be required to have a performance bond, also known as a surety bond, to get a contract successfully. This is most common when dealing with larger private or government contracts.
What are the benefits of having contractor’s insurance?
An often overused saying in insurance, “accidents happen”. Having a good insurance policy is part of a good risk management plan that all small businesses should have in place. It provides coverage in times of need.
And it helps cover the financial costs of accidents and claims that may arise while performing your services. This includes covering damages to third-party property and legal fees.
Consider all the possible areas for issues on a construction site, each of these has the potential to result in a claim. Even if that claim is completely unfounded, the right insurance policy will cover the legal expenses associated with defending your business.
It is essential to customize your contractors insurance coverage to suit your operations and needs to maximize the protection it provides. When looking for contractors insurance, you should speak to a licensed insurance broker to understand your risks and how to cover them.
Bonus tip: Make sure your subcontractors covered correctly by either your policy or their own.
How much does contractor insurance cost?
Generally speaking, contractor insurance ranges from around $500 to $1000 per year. The following factors come into play when getting a quote;
- How long you’re in business
- The exact work you do and if it’s risky
- Your annual revenue
- Any previous claims
- The location of your work
- If you ask for higher coverage limits
- If you ask for lower deductibles
Many other factors come into play when getting an insurance quote, but these are the biggest ones. Make sure to discuss these factors with your broker when buying insurance.
Scenario: Imagine you’re a scaffolding contractor, and you ask one of your employees to carry scaffolding to another job site area. While doing this heavy lifting your employee injures themselves and also drops the scaffolding on other material, causing damage.
In this instance, your CGL policy could cover the cost of the materials that were impacted by accidentally damage. And also cover the cost of any damages awarded to your employee.
Scenario: While working on a client project your tools are stolen from the back of your truck. Meaning you need to buy new ones in order to keep working.
In this scenario, your tool and equipment coverage would protect you from financial loss and keep your business up and running.
What types of contractor liability insurance are available?
Contractors need to be aware of the different types of liability insurance coverage available to them to protect their business and livelihood. The main types of contractor liability insurance are: Business Liability, Commercial Auto, Property Insurance, Equipment Breakdown, Professional Liability and Cyber Insurance.
What is the difference between liability and property damage liability insurance?
While they’re both types of business insurance, they don’t cover the same risks. Liability insurance is a broad term that can provide coverage against bodily injury, false advertising and property damage. In comparison, property damage liability insurance would only cover property damage claims.
What is the difference between general contractor and subcontractor insurance?
In Canada, there is no distinction between the two when it comes to insurance. You can often add a subcontractor to your policy if needed. However, both parties should hold their own coverage to protect themselves from liability fully. You should ensure your insurance policy covers you if you outsource to a subcontractor.
What is the difference between contractors insurance and commercial general liability insurance?
Contractors insurance is a broad term incorporating a few different insurance coverage options, whereas commercial general liability insurance just refers to CGL.