At Dunn Solutions, we’re dedicated to providing trusted information and advice to support trade contractors and craftspeople throughout the greater Seattle area. While we often share insight on quality materials and building techniques, we also understand that there are countless other facets of your business required to keep things running smoothly—like insurance. 

From the basics of what contractor liability insurance is and how to read your policy to understanding policy exclusions and Washington laws that impact contractor liability insurance, there are a lot of factors to consider for your business. That’s why, for our Contractor Liability Insurance Series, we’re speaking to Shelli Lucus-Kennedy, owner and senior risk manager of Insurance Risk Services. With more than 40 years in insurance and risk management and a focus on the construction industry, Shelli is a wealth of knowledge, due to her extensive experience and customer-driven approach. 

In this episode, we go over the basics of contractor liability insurance—who needs it, and what it covers. We also touch on other types of coverage, like auto insurance for independent contractors. 

Watch our discussion in the video above, or keep reading to get the highlights.

What is general liability insurance?

General liability insurance for contractors protects contractors from third-party claims—including homeowners, sub-contractor employees, or construction defects later on. 

There are two sides of covered liability:

  • Premises liability and operations during construction 
  • Potential complaints or defects after construction  

For potential complaints or errors (a third party suing the contractor), the insured contractor doesn’t receive anything or collect money, but the insurance pays out on their behalf, covering lawsuit protection, defense costs, or any judgments that are made against them. 

As its name suggests, general liability insurance is a catchall. Contractors need to purchase specialty lines of insurance to cover things like auto liability, workers’ compensation, employer’s liability, or pollution errors and emissions—then general liability insurance fills in the gaps as basic business liability.   

Note: Construction equipment is generally covered under general liability insurance unless licensed for road use, then it falls under auto liability (read more about auto liability below). Sometimes there is crossover with some vehicles, such as tractors and trailers. Your insurance agent can help you determine which type of insurance you need for which type of vehicle or equipment. 

What is auto insurance for independent contractors?

Auto liability is excluded under a general liability policy, making auto insurance for contractors a necessity. (Consider all the times a subcontractor may be driving their vehicle or parking on the site.) Rules are different by state, but in Washington State, the legal liability follows the owner of the vehicle. That means that if there is an accident on the job site, the liability goes first to the registered vehicle owner, followed by the driver(s) involved, then the general contractor on the site (who has the strict liability of the site), and then trickles down to subcontractors who have civil liabilities.

Shelli recommends checking that each subcontractor has independent contractor auto insurance. She also suggests looking into non-owned auto coverage, which helps protect the policy owner from any auto liability claims that they’re brought into, but in which they don’t own any of the autos involved. 

What happens with insurance when a contractor closes their business and stops working?

In Washington State, the statute of repose (essentially a timeline in which a contractor can be sued) is six years. So, when someone closes their business, they still need to be covered for six more years.

There are two types of general liability policies:

  • Occurrence policies—Occurrence policies allow holders to make a claim against that policy forever. However the occurrence date, or loss date, has to fall within the policy terms.
  • Claims-made policies—Claims-made policies require holders to have the event and make a claim during the policy term, meaning contractors should be very wary of choosing this type of policy.

Regardless of what a contractor has, they will want to keep the policy active to continue to have protection six years after their last project or close of business. 

If you’re considering closing your business, Shelli recommends speaking with your insurance agent early so they can help you navigate how to best handle your policies and ensure you’re covered. 

What is stop-gap insurance? 

While other states allow contractors to use the free market to purchase their worker’s compensation and employers liability insurance as a combined policy, Washington requires contractors to purchase Labor and Industries (L&I) insurance. This only provides worker’s compensation coverage (which covers things like repayment for injuries or time loss), which means contractors then must also purchase employer’s liability, providing a stop-gap for what is not included with L&I, which covers things like loss of family or bad reporting. 

Why is it important for an insurance agent to know the types of projects their clients work on? 

When purchasing general liability insurance, every contractor starts out with a basic form that’s also used for other businesses and situations. The only way an agent can effectively contain price and provided necessary coverage for the contractor is by modifying policies with exclusions and limitations based on what the contractor does. For example, a contractor working solely on single-family homes should have different exclusions—and a lower premium—than contractors working on both single-family homes and multi-family housing. It’s crucial the insurance agent has a strong understanding of the builders and projects a contractor is working for and on to accurately plan for their liability protection and relevant exclusions. Learn more about this in the video starting at 1:20. 

Check back soon for our next installment of our Contractor Liability Insurance Series, where we go over how to read your contractor liability insurance policy. In the meantime, you can find our complete Decking Series here or our Plywood Series here.