General Liability Insurance for Contractors: What It Covers

General liability insurance pays when a contractor’s work injures someone who is not an employee or damages someone else’s property. It is the policy clients, general contractors, and many licensing boards ask for first, usually as proof on a certificate of insurance. The Small Business Administration lists it as a common policy for any business, covering bodily injury, property damage, and the legal costs that follow.

The short version:

• It covers bodily injury and property damage to third parties, and the legal defence that follows.
• It does not pay to redo your own faulty work.
• Coverage for problems that appear after the job is finished comes from “completed operations”, so keep the policy going.
• Subcontractors are routinely asked to name the general contractor as an additional insured.

This is general information, not insurance or legal advice. Policy wording varies, so review any policy with a licensed insurance professional.

What it covers

A commercial general liability (CGL) policy has three main parts, as the Insurance Information Institute describes:

• Bodily injury and property damage. A passer-by is hit by falling material. You crack a client’s water line and flood the kitchen. The policy pays the damages and your defence.
• Personal and advertising injury. Claims such as libel, slander, or using someone’s image without permission in your advertising.
• Medical payments. Small medical bills for someone injured on your job site, paid regardless of fault.

For contractors, the most valuable piece is products and completed operations coverage. It responds when your finished work causes injury or damage later, for example a deck you built collapsing a year afterwards.

What it does not cover

These exclusions catch contractors out more than any others:

• Your own faulty workmanship. The policy covers the damage your work causes, not the cost of redoing the work. If a badly installed roof leaks, the ruined ceiling may be covered; replacing the roof is not.
• Injuries to your employees. That is workers’ compensation.
• Your vehicles. Trucks and vans need commercial auto insurance.
• Your tools and equipment. These need inland marine or equipment coverage.
• Professional errors. Design or engineering mistakes need professional liability insurance.
• Pollution, in most standard forms.
• Specific operations. Some policies exclude roofing, work at height, residential construction, or particular states. Read the endorsements.

When a client’s claim might fall under one of these exclusions, insurers often defend the case anyway and send a reservation of rights letter keeping the right to deny coverage later.

Limits, in plain terms

A policy has two main limits:

• Per occurrence: the most it pays for one incident.
• General aggregate: the most it pays in total during the policy period.

$1 million per occurrence with a $2 million aggregate is the most commonly requested combination. Large projects may ask for more, which contractors often meet with an umbrella or excess policy.

Ask for a per-project aggregate if you run several jobs at once. Without it, a claim on one job reduces what is available for all the others.

Certificates and additional insureds

Certificate of insurance (COI). A one-page summary that proves you have coverage. Clients and general contractors ask for it before you start. It is evidence only; it does not change the policy.

Additional insured. A general contractor or property owner may require you to add them to your policy for claims arising from your work. That takes an endorsement, not just a line on the certificate. Check which form is used and whether it includes completed operations.

Waiver of subrogation. Stops your insurer from pursuing the other party to recover what it paid. Often required by contract.

Primary and non-contributory. Means your policy pays first, before the other party’s policy.

If you are a general contractor, collect certificates from every subcontractor, check that the dates cover the whole job, and confirm the endorsements exist. An uninsured subcontractor’s claims can land on your policy.

Occurrence or claims-made

Most contractor policies are written on an occurrence basis: the policy in force when the injury or damage happens is the one that pays, even if the claim arrives years later. Some are claims-made, which only respond if the policy is active when the claim is made. For construction, where defects surface late, occurrence coverage is usually the safer form. Confirm which you are being quoted.

What drives the price

• Trade. Roofing and structural work cost far more than painting or flooring.
• Revenue or payroll, which the insurer uses to measure exposure and audits at year end.
• Subcontractor costs, and whether your subs are insured.
• Claims history.
• Where you work, and whether the work is residential or commercial.
• Limits and deductible.

By trade: plumbers, HVAC, and construction firms

The same policy form protects every trade, but each trade’s claims look different, and so does the price. Two reference points from the online broker Insureon, for a policy with $1 million per occurrence, $2 million aggregate, and a $500 deductible: plumbers pay a median of $147 a month, about $1,768 a year (Insureon, plumbers), and construction businesses $89 a month, about $1,069 a year (Insureon, construction). Your own quote depends on the factors below.

What to check for your trade:

• Plumbers. Water damage is the classic claim: a joint fails after you leave and floods a finished basement. Make sure completed operations coverage is included, and ask how the policy treats sewage and mould, which some policies limit under pollution exclusions.
• HVAC contractors. Fire and carbon monoxide claims from faulty installation fall under completed operations. Ask whether work on gas lines or refrigerants is excluded or needs an endorsement.
• Construction and general contractors. Expect to name clients and property owners as additional insureds and to collect certificates from every sub. Check for exclusions on residential work, subsidence, and work above a certain height, which some policies add for high-risk trades.

If a policy excludes the thing your trade most often gets sued for, a low premium is not a saving.

Frequently asked questions

Is general liability insurance required for contractors?

It depends on the state and trade. Many licensing boards require it, and almost every commercial client and general contractor does by contract.

Does general liability cover faulty workmanship?

Not the cost of redoing your own work. It can cover damage your work causes to other property, and injuries.

What is completed operations coverage?

Coverage for injury or damage that happens after a job is finished and handed over. It only applies while you keep a policy in force, or under an occurrence policy that was active when the damage happened.

Do subcontractors need their own policy?

Yes, in practice. General contractors normally require each subcontractor to carry general liability and to name them as an additional insured.

What limits do most contracts ask for?

$1 million per occurrence and $2 million aggregate is the most common requirement. Check each contract.

Where to go from here

Read the insurance clause in your contracts before you buy, so the policy matches what you have agreed to. If you are switching insurers, request your loss run report early, since underwriters ask for it before quoting. Our guide to LLC insurance cost puts general liability beside the other common policies, and all the business insurance guides are in one place. Arhox is an independent publication, not an insurer or broker; our editorial policy and disclaimer explain how these guides are prepared.