So, you run your own business as a contractor and things are going well. You’re booked for weeks or months in advance and have a tonne of happy customers recommending you to their friends and family and others in the community.
You buy insurance every year, mainly so that you are able to show your clients that all important “certificate of insurance” and then get on with the job. Many of your clients will insist that you are able to provide a certificate of insurance before you can start a project so you call your broker to arrange the necessary contractor’s insurance.
Have you ever stopped to wonder what that certificate of contractor’s insurance actually represents? Why do prospective clients, general contractors or project managers insist on seeing this and make it conditional on you winning a contract?
What’s the Purpose of a Certificate of Contractor’s Insurance?
In a nutshell, a contractor’s certificate of insurance is there to demonstrate what level of liability insurance you have purchased, what it covers and who can benefit from it.
Liability insurance protects your business when it is legally required to pay damages to a third party. In non-technical language, if you are sued and you have the right coverage, your insurer will defend you in court if necessary and / or settle with the person who is suing you.
Our guess is that you may not have the financial resources to defend yourself in these circumstances or to pay damages if you are found guilty. A certificate of insurance is your way of telling a homeowner, business owner, general contractor or other project manager that an insurance company will step in and foot the costs of legally awarded damages.
Remind Me – What Does Contractor’s Liability Insurance Cover?
The most essential type of liability insurance for contractors is called Commercial General Liability (often referred to as CGL). This covers your business for liability arising out of bodily injury or property damage caused by you or your employees through the course of your activities. This is critical for any contractor as there are a myriad of ways in which your activities can cause property damage or bodily injury. To give some very basic examples:
- Paint spilling or over-spraying and damaging property
- Screws or nails mistakenly drilled into hidden pipes causing slow leaks
- Heat from a welding torch in a tight area setting fire to property
- Slip and fall at your worksite, e.g. over an unattended extension cable
In addition to the most common CGL insurance, there are several other different liability insurances which could be equally relevant for your business:
- Products & Completed Operations – covers your businesses’ liability for property damage or injuries to a third party once your operations are complete.
- Pollution liability – Pollution liability covers your businesses’ liability for property damage or injuries to a third party arising from the release of hazardous or toxic materials, e.g. oil or other chemicals into the ground or water supply.
- Auto liability – if you use a truck or van for your business, then you will need auto liability insurance in the same way as for your personal auto.
- Non-owned Auto liability – protects your business from a loss if your employees use their personal vehicles for business purposes and are found liable for any bodily injury or property damage through this use.
- Data and privacy liability – if you collect information about your clients which may be sensitive, then you would need cyber liability if you are hacked and liable for damages under the Privacy Act.
I have 20 years experience in my trade and nothing’s ever happened. Is liability insurance just a cash grab?
There are a million things that could go wrong which could lead to you being sued. In addition to all of the risks associated with your specific trade, consider these three things:
- You may have 20+ years experience, but what about your employees? Everybody’s got to learn somehow, and people make mistakes along the way. It’s virtually impossible to directly supervise every activity one of your apprentices or less experienced employees make – but your business is ultimately responsible for them and the consequences of their mistakes.
- You can be sued for things you didn’t do. We’re living in an increasingly litigious world and levels of trust between contractors and their employees is perhaps not what it used to be. Even if you’re not directly responsible for something, you can still be brought into a lawsuit and need to defend yourself. Sure, you might end up being cleared of any blame, but you could easily rack up enough legal costs in this process equivalent to many years of insurance premium payments.
- Sometimes mistakes just… well… happen. The fact is, even with experience, bad things can happen. Anyone who honestly believes there is no chance of a mistake is probably over confident and perhaps not paying enough attention to the risks of their business. Good contractors know this more than anyone, and treat every project with the respect and care it deserves.
What’s in a Contractor’s Certificate of Insurance?
A typical certificate of insurance will include the following information. Let’s go through these one by one to make sense of it:
- The person or company who is given this certificate to prove your insurance, who will also usually receive a notification if the insurance is cancelled at a later date.
- Your businesses name and address – so you can correctly be identified by whomever is seeking to contract you.
- A description of your operations – your certificate will state what operations you are insured to undertake. This reflects what the insurance company thinks you are doing. If you require the certificate to include an additional or different description of your operations, then these would need to be approved by your insurance company in advance and might change the terms and cost of your insurance.
- Coverages and limits – each different type of liability insurance will be listed here with an indication of whether or not it’s included in your insurance. If it’s included, your certificate will also state the limit of insurance provided for any one occurrence, and in aggregate each year. Also detailed here are the dates from which any coverage takes effect, and when it expires.
- Cancellation process – an indication that a notice of cancellation will be sent to the certificate holder if the insurance is cancelled before the expiry date.
- Brokerage / Agency name and address – the name of the insurance broker or agent who arranged this insurance on your behalf, who can also answer any questions that may arise.
- Additional named insured – a person or organization that will benefit from the certain coverages of your insurance policy.
What Else Do I Need To Do?
If you already have insurance, then the process to issue a certificate can be very quick and easy. Just speak to your insurance broker and everything will be taken care of.
If you don’t have insurance, then this can be arranged and put in place usually within one call, and a certificate can be sent straight after.
Mitchell & Whale are experts in contractors insurance, with access to over 40 insurers to painlessly find you the best solution for your business. If you have any questions, don’t hesitate to reach out to one of our experts.