Contractor Liability Insurance

The Basics of Contractor Liability Insurance

If you’re hired on as a contractor, you’re likely there to perform a specific, often specialized, job or service. You may produce a product or maybe you provide advice. If a third party or your client claims you’ve failed to deliver, made a mistake, or cost them financially, they may sue you. Regardless of who’s right, you’ll have to deal with the litigation process.

As a professional, you may be required to purchase Contractors Professional Liability Insurance to cover yourself in case any lawsuits should arise claiming malpractice, negligence or error. Professionals may also be asked by clients or other stakeholders to provide proof of insurance and certain professionals may be required to carry a certain minimum amount of contractors Professional Liability Insurance in order to operate.

What does Contractors Insurance cover?

Contractor Professional Liability Insurance helps cover the legal expenses, damages or settlements for claims that fall under the policy conditions, which exclude deliberate dishonesty, misrepresentation or fraud. As litigation costs can quickly escalate, this coverage is critical if you’re a contractor.

How much Contractor Liability Insurance do you need?

The amount of coverage you need depends on:

• Your industry
• The number of clients you have
• Who your clients are
• The size or value of your contracts
• The potential size of a legal claim that could be made against you
• Your contractual requirements

You can choose between a $1 million, $2 million and $5 million coverage limit. This is the most that will be paid out over the 12-month policy period, regardless of how many claims you make. This includes judgement awards, settlement, and defense costs.

Your deductible will depend on your company’s revenue, ranging from $250 to $1,500 per claim. You’ll need to pay a deductible for each claim, i.e. if you have two claims, you’ll pay the deductible twice.

Keep in mind you won’t be covered for deliberate fraud, dishonesty or misrepresentation and not all scenarios are covered. If you fail to advise your insurance company of a known incidence that could likely result in a claim, you may also not be covered. For example, let’s say you made a mistake that results in a delay for a project. You should let your insurer know, even if it doesn’t escalate to a lawsuit. Sometimes being served comes as a complete surprise, but often you know ahead of time that there is a risk. Communication is key!

The Cost of Contractor Liability Insurance

How much does Contractor Liability Insurance cost? Typically the hiring party or governing body will require that you carry at least $2,000,000 liability coverage to ensure that there is a safety net in the event that anything should happen.

• The average price for contractors liability insurance begins at around $850 per year with the standard amount of $2,000,000 liability protection.
• For higher coverage limits of around $3,000,000 liability rates can be around $1100 per year or $1350 per year for $5,000,000 liability.
• For example, your average photographer might pay around $500 per year for contractors liability insurance.

How much Contractor Liability Insurance should I have?

The amount of coverage depends on the nature and size of your business, who your clients are, as well as a number of other factors, including:

• Does your business transport equipment or travel in the course of providing services?
• Does your business provide financial advice or service? Contractors Professional Liability Insurance may be necessary for these professional business-specific risks.
• What is the scope of your projects or services? Are your clients individuals, small businesses or large corporations?
• Do you do manual work or manage projects?