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🛡️ Construction Insurance Requirements

Understanding insurance requirements protects your business and keeps you compliant with contract requirements. This guide covers what you need and how to manage it.

Key Principle

Get your insurance right before you start work. Being underinsured can bankrupt your company. Being unable to provide proper COIs can lose you the job.

Required Coverages​

General Liability (CGL)​

What it covers:

  • Bodily injury to third parties
  • Property damage to others' property
  • Personal injury (libel, slander)
  • Completed operations (after job is done)

Typical limits:

  • $1,000,000 per occurrence
  • $2,000,000 general aggregate
  • Higher for larger projects ($5M+)

Key endorsements:

  • Additional insured (primary & non-contributory)
  • Waiver of subrogation
  • Per-project aggregate

Workers' Compensation​

What it covers:

  • Medical expenses for injured workers
  • Lost wages
  • Rehabilitation
  • Death benefits

Requirements:

  • Required in all states (except TX)
  • Covers all employees
  • Rates vary by classification code
  • Experience mod affects premium

Auto Liability​

What it covers:

  • Accidents involving company vehicles
  • Hired and non-owned autos (employee cars)

Typical limits:

  • $1,000,000 combined single limit
  • Higher may be required ($2M+)

Must include:

  • Owned autos
  • Hired autos
  • Non-owned autos

Umbrella/Excess Liability​

What it covers:

  • Additional limits above CGL, auto, employers liability
  • Broader coverage in some cases

Typical limits:

  • $1,000,000 to $10,000,000
  • Required on larger projects
  • Relatively inexpensive coverage

Builder's Risk​

What it covers:

  • Damage to work in progress
  • Materials on site
  • Theft, fire, weather damage

Who provides it:

  • Usually owner on new construction
  • Contractor may need on remodels
  • Check contract carefully

Professional Liability (E&O)​

What it covers:

  • Design errors if you do design-build
  • Professional services mistakes

Who needs it:

  • Design-build contractors
  • Contractors providing engineering
  • Some owners require it

Pollution Liability​

What it covers:

  • Environmental contamination
  • Cleanup costs
  • Third-party claims

Who needs it:

  • Environmental contractors
  • Demolition contractors
  • Projects with contamination risk

Understanding Certificates of Insurance (COIs)​

What's on a COI?​

  1. Named insured - Your company name
  2. Policy numbers - For each coverage
  3. Policy dates - Effective and expiration
  4. Limits - Coverage amounts
  5. Certificate holder - Who requested it
  6. Description of operations - Project reference

Common COI Requirements​

Additional Insured

  • Certificate holder is protected by your policy
  • Required on almost every project
  • Needs endorsement, not just listed on cert

Primary & Non-Contributory

  • Your insurance pays first
  • Owner's insurance is excess only
  • Requires specific endorsement

Waiver of Subrogation

  • Your insurer won't sue the certificate holder
  • Even if they caused the loss
  • Must be added by endorsement

Getting COIs Issued​

  1. Review contract requirements carefully
  2. Send requirements to your agent early
  3. Allow 3-5 business days for processing
  4. Verify accuracy before sending
  5. Track expiration dates for renewals

Insurance Costs​

What Affects Your Premium?​

Workers' Comp:

  • Payroll by classification
  • Experience modification rate (EMR)
  • State you're working in

General Liability:

  • Revenue or payroll
  • Type of work
  • Claims history
  • Territory

Typical Costs​

CoverageTypical Range
General Liability1-3% of revenue
Workers' Comp5-20% of payroll (varies by trade)
Auto$1,500-3,000 per vehicle
Umbrella ($1M)$1,500-5,000/year

Reducing Insurance Costs​

  1. Safety program - Lower EMR = lower premiums
  2. Shop every 2-3 years - Get competitive quotes
  3. Higher deductibles - Trade premium for risk
  4. Pay annually - Avoid financing charges
  5. Bundle coverages - Package discounts

Experience Modification Rate (EMR)​

What is EMR?​

A multiplier based on your workers' comp claims history:

  • 1.0 = Industry average
  • Below 1.0 = Better than average (lower premium)
  • Above 1.0 = Worse than average (higher premium)

How It's Calculated​

Based on 3 years of:

  • Premium paid
  • Expected losses for your classification
  • Actual losses incurred

Impact Example​

Base workers' comp premium: $50,000

  • EMR of 0.80: Pay $40,000
  • EMR of 1.25: Pay $62,500

Improving Your EMR​

  1. Implement safety program - Prevent injuries
  2. Report claims promptly - Early intervention
  3. Light duty program - Keep workers on payroll
  4. Claims management - Work with insurer to close claims
  5. Review your mod worksheet - Ensure accuracy

Common Insurance Problems​

"I can't meet the requirements"​

Options:

  • Ask if limits can be reduced
  • See if umbrella can make up difference
  • Request project-specific policy
  • Walk away if you can't get proper coverage

"COI was rejected"​

Common issues:

  • Additional insured not showing
  • Wrong project description
  • Limits don't match requirements
  • Missing waiver of subrogation

Solution: Send exact contract language to your agent

"My renewal is much higher"​

Causes:

  • Claims in past year
  • Market hardening (industry-wide)
  • Revenue/payroll increased
  • Higher-risk work

Solutions:

  • Shop to other carriers
  • Improve safety program
  • Increase deductibles
  • Review classifications for accuracy

Insurance Checklist by Project Type​

Residential Remodel​

  • General liability ($1M/$2M)
  • Workers' comp
  • Auto liability
  • Builder's risk (if required)

Commercial Tenant Improvement​

  • General liability ($1M/$2M)
  • Workers' comp
  • Auto liability ($1M)
  • Umbrella ($1-2M)
  • Additional insured for owner/GC

Large Commercial/Public Works​

  • General liability ($2M/$4M+)
  • Workers' comp
  • Auto liability ($2M+)
  • Umbrella ($5-10M)
  • Builder's risk (verify who provides)
  • Pollution (if applicable)
  • Professional liability (if design-build)

Working with Your Insurance Agent​

Finding the Right Agent​

Look for:

  • Construction specialty
  • Access to multiple carriers
  • Understands your trade
  • Responsive service

What to Provide Annually​

  • Updated revenue projections
  • Payroll by classification
  • Vehicle schedule
  • Subcontractor list
  • Project schedule

Questions to Ask​

  1. Am I properly covered for my work?
  2. What's excluded from my policy?
  3. How can I reduce my costs?
  4. What happens if I work in another state?
  5. Are my subs' requirements adequate?