Contractor Insurance Defined
Contractor insurance is the coverage that a business owner gets to manage risk. It’s a toolbox of insurance protection designed to mitigate and minimize exposure to financial hardship. For construction professionals in New Jersey, contractor insurance is required to run legally be able to perform work in the garden state. But furthermore, it’s the kind of insurance that can help shield a construction business from liability for programming mistakes, construction defects, on-the-job injuries, and job-site mishaps.
Insurance policies allow business owners to have peace of mind knowing that, when the unexpected happens, their operations are covered. Workers’ compensation is a must-have kind of contractor insurance because NJ law requires it for all businesses with an employee. Workers’ compensation helps to keep an injured worker from suing an employer for the losses associated with a workplace injury. The workers’ compensation policy pays for medical bills, lost wages, and other on-the-job injury-related expenses. But these aren’t the only risks a New Jersey construction business faces.
When it comes to being a contractor and working in the construction industry, there’s always the chance that an employer could be liable for damages or financial hardship because of a defective product used or a programming error made. For example, if a plumbing system malfunctions and causes damage to a client’s property or the structure of a building, the business could be responsible for paying for repairs. The same goes for a software error that leads to a programming issue. Liability insurance is designed to protect a business from this kind of financial exposure.
Employers’ liability insurance and disability insurance are also policies designed to safeguard a business against risks. And in addition to New Jersey having various laws and statutes for required contractor insurance for certain construction professionals , it’s also helpful to know that some jobs require a contractor to have specific insurance to be able to work. For instance, a state public works project might mandate a contractor to have pollution liability insurance, or a municipality might require a contractor have additional insured status on their commercial general liability policy.
There’s a lot of insurance a NJ construction professional might want to get and the kinds of insurance that a contractor should have depends on the industry segment they’re providing services for. A contractor that primarily provides commercial work might have more risk than one who focuses their work in residential building. And a plumbing or electrical contractor might face different kinds of risks than a credentialed asbestos abatement contractor who does demolition work. Overall, though, contractor insurance is complex and an insurance agent can help a business sort through their need for coverage.
A big consideration when it comes to contractor insurance for a site-built commercial project is general liability insurance. This is the basic policy that ensures an investor/owner/employer is protected from the financial losses that could result from work done on a construction project. General liability policies cover a variety of risks and exposures related to contracting or construction work, such as:
New Jersey’s business insurance laws also require nearly every business have a commercial general liability policy. Since February 23, 2018 (N.J.S.A. 2A:62A-5), contractors are required to carry a $500,000 policy. It’s important to note that builders’ risk insurance is separate from general liability insurance and that it’s the type of insurance designed for specific construction projects.
The Types of Contractor Insurance in NJ
State and federal law require all NJ contractors to provide certain types of insurance coverage for their businesses, known as commercial general liability (CGL) insurance. Please note that regulations establish minimum limits as of the date of this blog, but limits that are higher are generally recommended. The reason is because the limits are often insufficient to cover a large award against your company. In particular the NJ DCA regulations mandates that contractors provide coverage to protect against losses that might result from claims for bodily injury, property damage, personal and advertising injury, and "professional services" (such as design services), and will indemnify for liabilities incurred as the result of an accident. General liability policies are designed for businesses, which include contractors, and have no caps on the number of lawsuits that may be filed within a coverage period. General liability policies also provide coverage in the event that someone is injured on your property. It also insures you for the wrongful act of an "employee".
Workers compensation insurance is also required by law and is designed to pay benefits to workers who are injured or who become sick as a direct result of their work. In NJ, if an employee suffers an on-the-job work-related injury, the employer’s insurance company pays for reasonable medical expenses and a percentage of lost wages while the employee is unable to perform work. Coverage is provided in accordance with the statute for the duration of the disability.
Commercial auto insurance is also required for most contractors. These polices provide liability insurance coverage for any injury or damage caused by the negligence of the insured in the operation of a vehicle. It also insures the negligence of employees who may operate a vehicle on behalf of the business. Due to the fact that employees whose work requires them to use their own vehicles provides commercial auto policies to cover any additional risk. The amounts of coverage provided by commercial auto policies vary.
The Importance of Contractor Insurance in NJ
In navigating the complex legal terrain of New Jersey, having contractor insurance is not just a good idea, it’s a legal mandate. The state has set minimum insurance requirements for contractors to protect both the workers and the clients. For instance, general liability insurance, which provides coverage against third-party bodily injuries and property damage, is commonly required for contractors. Failure to maintain this insurance can result in fines, loss of licenses or even potential lawsuits from unhappy customers.
New Jersey also requires employers to have workers’ compensation coverage for all their workers. This insurance pays for medical treatment and disability benefits for an employee who becomes injured on the job. Not having this coverage places both the business and the workers at risk.
Of course, liability and workers’ compensation coverage are not the only types of insurance that contractors may need. For specific trades, the state mandates additional types of insurance, such as automobile coverage for those using their vehicles for work-related purposes, professional liability insurance for certain professionals, and more. These types of coverage help protect against a variety of risks and liabilities associated with running a contracting business.
But insurance is not only liability protection. It can also act as a buffer for your finances. If a customer claims defective work and sues you, liability insurance helps pay for the legal costs of defending yourself. If one of your employees gets injured, your workers’ compensation coverage prevents you from having to compensate them out of pocket.
Essentially, contractor insurance in New Jersey is about complying with the law and protecting your financial assets. It is an unfortunate fact that construction sites are often the scene of accidents and mishaps. Your license and hard-earned assets shouldn’t be made to pay for these.
Price of Contractor Insurance in NJ
The cost of contractor insurance in NJ can vary widely based on a number of factors. However, there are some general estimates that can be provided by the insurance companies. For the most part, quality contractor insurance in NJ can start as low as $500 to $1,000 per year for a small landscaping or handyman business. This would be a business owner’s policy which would provide some liability and property coverage. For more construction-based contractors (plumbing, heating, electrical, etc.), the cost of the insurance policies may be significantly higher but still very affordable in New Jersey. By and large, a plumbing contractor operating without a lot of commercial auto vehicles could likely expect an annual premium in the range of $1,800 to $2,500 per year depending on the general liability and property limits. With larger contractors, the costs can become significantly higher. A commercial contractor specializing heavy construction, excavation, or demolition work can quickly see annual insurance costs in the $20,000 to $100,000 per year range based on the business exposure and related risk factors. Workers compensation is going to be a significant portion of any heavy construction contractor’s expenses as a high-risk classification and others would be considered in that light such as excavation, demolition, rigging, crane work, etc.
There are some variations in contractors insurance costs based on the geographic location in NJ as there is more risk of coverage in certain areas of the state. Larger population centers would be considered higher risk areas than unincorporated residential counties. The density of housing and businesses will continue to be a consideration and so will the value of the homes and commercial enterprises being serviced and insured. The cost carriers use different formulas to determine the cost of contractors insurance and most consider one or all of the following factors – business location, type of work, number of vehicles, number of employees, payroll, claims history, loss control and management practices, safety records, coverage type elected, policy limits, excess coverage, additional insured endorsements, completion bonds, etc. While some advertisers talk about the cost of contractors insurance being inexpensive, the truth is that every contractor has a unique set of circumstances which is going to dictate the amount of risk and premium they carry. Getting a contractor insurance quote from one carrier or agent is not always the best option for a general contractor because it does not allow you the ability to compare one quote against another.
How to Select the Right Contractor Insurance Provider
When selecting an insurance provider in New Jersey, contractors should consider several critical factors to ensure they are working with a trustworthy company that can meet their needs.
Reputation is an essential factor when choosing contractor insurance providers. Online reviews, industry recommendations, and local reputation all play a role in determining if a provider is trustworthy. Speak to other contractors and business people in your network as well as consult the Better Business Bureau to find the best options.
Coverage options should also be considered when selecting an insurance provider. Any accidental errors or omissions during a construction project can be costly. It is essential to discuss with your provider and understand the coverage you have for each subcontractor, employee, subcontracted or even contracted worker. Will the subcontractor be covered by the insurance for accidents on the work site? If not, the contractor could be liable for damages. Also , it is important to understand the limits of your coverage options. If the coverage limit is $500,000 and there is a total loss estimated at $1 million, will you have to pay the other $500,000 out of pocket?
Another factor to consider when selecting an insurance provider is customer service. Can you get someone on the phone when needed? Is it hard to get questions answered? If you do not receive good customer service before you sign a contract, will it get better once you do? Ask about customer service when discussing options with your selected insurance provider.
Comparing quotes is a vital step in selecting contractor insurance in NJ. Some contractors may try to save money by opting for the lowest cost quote. Unfortunately, this may be a poor decision. Consider all of the above criteria when comparing quotes. Is the lowest quote really the best deal?
Consider these important criteria for selecting a contractor insurance provider in NJ.
Approaches to Getting Contractor Insurance in NJ
Securing the right contractor insurance policy for your New Jersey business is an essential step on the road to success. But how do you find the perfect fit? Follow these steps to ensure that you have the coverage you need:
Determine Coverage Needs
The specific coverages you select will depend on the types of projects you work on, as well as the size of your operation. It’s a good idea to consult with a business mentor or an attorney to make sure you are able to adequately protect yourself from risk.
Shop Around
Every insurer has its own requirements, processes, and pricing. This will probably be true whether you are pursuing a policy from an independent agent or an in-house agent that works with a single carrier. When comparing quotes, pay close attention to the deductibles and limits associated with each policy.
Review Terms and Limitations
Make sure you find out how a given carrier defines the types of risks typically faced by your business, as well as the limitations on coverage for each type. Help is available from companies such as the New Jersey Contractors Qualification Board if you are unsure of how to proceed.
Finalize Policy
Once you have decided which company you trust to provide you with the coverage you need at the right price, carefully review the policy terms and finalize the details. Afterward, it’s a good idea to have your attorney review the policy as well, and keep an eye on relevant developments in employment and construction law in New Jersey so that you can update your policy accordingly when necessary.
Contractor Insurance Pitfalls to Avoid
Many contractors fall prey to common mistakes heavily related to their insurance coverage in NJ. Because most people are not experts in insurance law, it is very easy to make minor mistakes that can have devastating consequences on your financial future and your ability to continue in business. Here are some common mistakes made by contractors throughout NJ and how to avoid them:
Unfortunately, it is easy to assume that if you have a license or are bonded, that you also have the correct insurance policies. This is far from the truth in New Jersey. Check your license carefully and see what the license requires in terms of coverage. If you do not have the required insurance in place, you are at a disadvantage if any party brings a claim against you.
The minimum workers compensation policy coverage for any employee in NJ is $100,000 and employers liability of $100,000. Every employee should have coverage. Unfortunately, many uninsured subcontractors may come and approach you. Be wary of each contractor that you hire. They should have workers compensation coverage for each of their employees, otherwise it will eventually fall on you to cover them in the event of a workers compensation claim.
Every policy has an initial waiting period for the claim to be processed. Once the claim is processed, you are required to list all of the possible parties against whom you would have a claim. But once your notice is in, you may not file additional claims against additional parties without prior approval from the insurance company. An example of this would be filing against an additional party whose work you realized was also defective after your notice. You must think carefully and strategically about potential defendants before you file the notice.
New Jersey has a mandatory arbitration program that all licensed contractors can participate in. It is always in your best interest to utilize that arbitration program. The reason is twofold; one, it is often cheaper to go to arbitration than it is to go to court, and two, the arbitrator will usually be an attorney (often a construction attorney), so you are hearing the dispute from someone who looks at the facts in a biased manner towards the contractor. This is a great tool because it is often cost effective and it allows you to get an answer to your dispute more quickly than through a lawsuit .
The failure to adhere to the priority of contract is a commonplace occurrence. Every construction contract delineates between owner and general contractor, general contractor and subcontractor, and sometimes subcontractor and sub-subcontractor. It is important to make sure that whether you are a general contractor or subcontractor, that you review the language in your contract thoroughly. If you do not follow the priority of contract, it is possible that your claim may be denied based upon your non-compliance with the contract language. It is also essential to make sure that you are listed as a beneficiary under each contract.
Failing to respond to discovery requests may subject you to sanctions. In some cases, clients allow us to respond to interrogatories or requests for production without their input. Make sure whenever you have a request for production or interrogatory, it is shown to you, and you are consulted about the accuracy of the discovery responses before they are filed with the Court. The reason for this is because the discovery responses your attorney files become part of your case. If the answers are incorrect, they could be used against you.
When filing a notice of claim with a contractor once a claim has been brought against you, do not assume that any random notice will do. Make sure you re-write the notice for the specific entity or case that is against you. Any notice will do, but if you take the time to re-write it to include the case number and the specific case or entity it is against, this most often results in a much quicker decision.
Entering into a construction contract without ever reading the contract or knowing what is in it is never a good idea. Make sure when you enter into a construction contract, it is reviewed by your attorney or that any possible site conditions are thoroughly discussed with the other party.
Unfortunately, many contractors this day and age do not have the cash flow necessary to tend to a claim that is hundreds of thousand dollars. This is a common problem that contractors face and many times this means seeking alternative funding. Some of this may even include a discount from your current insurance company to fund your policy. Speak to your attorney and your current carrier to avoid such a situation.