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3 Reasons Why General Contractors Need Liability Insurance


Do you have sufficient General Contractors Insurance? Is your general contractor business prepared to face the financial implications that arise from cost overruns, time overruns or questionable quality of your workmanship? Hence, it may be time to double check whether your General Contractors Insurance is adequate for your needs.

Here are 3 sources of concern for every general contractor:


  • Cost Overruns


Cost overruns in construction projects are often caused by factors such as: 

  • poor change management, 
  • mistakes in project design, 
  • errors in contract documentation, 
  • inaccurate estimation of project scope and, most of all, 
  • accidents.

The effects of mistakes, negligence and accidents often have high financial implications for the business owner.Thus, costs of replacement of damaged property, medical costs in cases of bodily injury, legal costs, rehabilitation cost, and workers compensation are just a few of the possible costs in such incidences.

These extra costs could get a general contractor like you into real financial trouble, especially if the cost of remedying the situation exceeds the contingency amount allocated in the contracts. Therefore, it is advisable for general contractors to transfer this risk to General Liability Insurance providers as a risk management strategy. This will protect your small business from extra financial costs, and possibly, bankruptcy.

General Contractors Insurance often covers costs of material damage, third-party bodily injury claims and property damage. 

It is important to note that, whilst General Contractors Insurance is vital to protect against third party claims, it does not usually offer coverage for punitive damages. Thus General Liability Insurance policies normally do not pay for punitive damages resulting from a lawsuit.



  • Time Overruns


Time overruns in construction sites are often caused by factors including: 

  • delays in material delivery, 
  • delays in obtaining skilled workers, 
  • errors and omissions in project scheduling, 
  • changes in project scope, 
  • contractual and legal claims, and 
  • injuries as a result of accidents, mistakes or negligence.

Rectifying mistakes and implications of damages as a result of accidents and negligence often take lots of extra time, beyond the project schedule, thus resulting in time overruns. 

Additionally, contractual claims by workers, subcontractors and third parties may sometimes lead to long periods of time wasted in resolving disputes. 

Be sure to have insurance coverage for loss of profits as a result of the time lost and delays caused by negligence, mistakes, and accidents on construction sites.  


  • Quality Issues


The general liability for unsatisfactory quality in project execution and workmanship is often borne by the general contractor. Quality issues may result from:

  • errors in material specifications, 
  • negligent use of substandard materials, 
  • poor management, 
  • poor procedures, 
  • design complexity, 
  • lack of adequate skills and expertise, and 
  • lack of material testing.

Accidents may also result in the loss of skilled workers, thereby reducing the level of workmanship on the project. Additionally, property damages caused by construction risks and hazards may sometimes require reworks or replacement of the property. In the process, the quality of the final work may be compromised, as compared to that of the initial product. 

General Liability Insurance does not cover your work. If something should go wrong with something that you have constructed an insurance policy like this will not provide protection unless you have a ‘workmanship or warranty’ exclusion.

Quality risks bear the highest financial implications on the project. This is because they may result in poor project performance, reworks, or building failure, among others. This is why general contractors need to take up additional Errors and Omissions Insurance or Professional Liability Insurance. General Liability Insurance won’t cover a professional mistake, but Errors and Omissions Insurance will cover implications arising from professional negligence, mistakes and unforeseen accidents on the quality and workmanship of the project.

For more information on General Contractors Insurance to cover cost overruns, time overruns and claims against the quality of your work, contact Contractors Liability.  We will assess and adjust your insurance program so that you are properly protected. 


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