The California Contractors State License Board (CSLB) requires all licensed contractors to carry certain types of insurance coverage. In addition, the construction industry contains many inevitable risks, and without adequate insurance, contractors may face hefty medical expenses, property damage costs, and legal fees. Insurance offers contractors protection from these risks. If an incident occurs on a job site, insurance can help cover the costs of damages and legal fees, potentially saving contractors significant amounts of money.
Required Insurance Coverage for Contractors in California
- Worker’s Compensation
As of January 2023, licensed contractors in California are also required to show proof of workers’ compensation insurance, regardless of whether they have employees.
Workers’ Compensation Insurance helps manage:
- Medical and Recovery Expenses: Covers costs when employees suffer work-related injuries or illnesses.
- Liability Expenses: Provides protection if your business is sued over workplace injuries.
- Replacement Wages: Supports employees with wages when they can’t work due to a covered injury or illness.
- Liability Insurance
As a contractor with valid liability insurance, any damage to the property resulting from poor workmanship or substandard materials will be covered. Liability insurance typically provides coverage for:
- Damage Claims: This insurance takes care of repair costs for any property damage caused by the contractor during their work.
- Injury Claims: The contractor’s liability insurance also covers medical bills, court judgments, or funeral expenses if someone gets injured while working. This coverage is separate from workers’ compensation insurance.
- Job Completion Claims: If the contractor fails to meet the expected standards, the insurance may cover, partially or fully, the expenses needed to correct the issues.
Optional Insurance Coverages for Contractors
- Commercial Auto Insurance
If you use a vehicle for business purposes such as transporting tools, equipment, or materials to job sites, commercial auto insurance is necessary to protect against liability and damage to that vehicle. If a vehicle is involved in an accident while being used for business purposes, personal auto insurance may not cover the damages.
- Professional Liability Insurance
Professional liability insurance, also known as errors and omissions (E&O) insurance, is important for contractors who provide professional advice, design, or other specialized services. This insurance covers claims related to negligence, mistakes, or failure to deliver services as promised. For example, if a contractor’s design flaw causes a structural issue, professional liability insurance would help cover the resulting costs.