Why do I need general liability insurance to run a contracting business in California?

The short answer: stuff happens. California is no different than any other state where that’s concerned. Stuff happens. Stuff you didn’t anticipate. Stuff that can end up costing someone a lot of money, and you don’t want that someone to be you. General liability insurance is a solution.

California contractors face the same risks as contractors everywhere else. An accident at your place of business or at a work site could result in injury or property damage and a law suit against your business. The work that contractors and subcontractors do can be dangerous. Excavators and electricians and roofers and people who work with power tools or heavy equipment face far more dangers on the job than the average office worker, for example. California general liability insurance can keep you from being bankrupted by a serious worksite accident.

You may be wondering, “Why do I need general liability insurance if worksite accidents are covered through Worker’s Compensation?” The simple answer is that Worker’s Compensation Insurance replaces some of the wages a worker may lose due to an accident and pays some of the injured worker’s medical bills. But it won’t help you if you lose a lawsuit related to a worker’s on-the-job injury.

Some risks contractors face are not as obvious as a worksite accident. Suppose you install a lighting fixture in a house you’re remodeling for a residential client. The fixture turns out to be faulty and causes a fire. The house will need extensive reconstruction, and the homeowner will need temporary housing in the meantime. And there are big medical bills for treating injuries suffered during the fire. The company that manufactured the malfunctioning lighting fixture has gone out of business. So guess who gets sued? Or, suppose that a visitor to your place of business trips and falls and sues you for negligence. Such exposure to risk can also be offset by California general liability insurance.

Clients and contractors you work with in California expect you to be covered by general liability insurance. They’re probably not worried about what would happen to your business if you lose a law suit. They simply want to make sure that if you get sued and lose, you will be able to pay up. They may even require you to carry a certain amount of general liability coverage as a condition for working with them. The type and amount of insurance your business carries may be the deciding factor in whether or not you win a contract.

Deductibles: How much and for what?

The rule of thumb with most insurance is: the higher the deductible, the lower the premium. In other words, you take on the risk of paying more out of your own pocket later for lower premium payments now. Unfortunately, most people worry more about current expenses than about something that might happen sometime in the future, or not at all. The question for contractors can choose to have the same deductible for bodily injury as for property damage, or have a higher deductible for one than for the other.

Part of your insurance strategy

General liability insurance is a must for contractor, you need to have an overall insurance strategy that protects your business in a number of ways. Your strategy will include Worker’s Compensation as well as general
liability insurance, and may also include more specialized insurance for situations not covered by either of those. You may also want to consider excess/umbrella coverage, insurance for materials and tools in transit from one location to another, and builder’s risk coverage.