Are Contractors Required to Have Insurance?

When you're running a business in the construction industry, there is no shortage of legal requirements to keep track of. Between OSHA regulations, federal employment laws, and even insurance requirements, keeping up with rules and requirements is a full-time job.

When it comes to contractor insurance, some big changes have made headlines in 2023 that will impact your construction business. Here's what you need to know about contractor insurance requirements.

Are Contractors Required to Have Insurance?

Prior to 2023, the answer to “are contractors required to have insurance?” was a resounding: maybe.

But after a new CA law went into effect in January 2023, that answer has changed. At least for folks working in the construction industry in the Golden State, SB216 has ensured that, yes, you do have to have at least one form of insurance to run your contractor business.

Required: Workers' Compensation Insurance

Worker's compensation is required by law in nearly all states for nearly all employers. Before 2023, if you operated a business in the construction industry, you were required to provide workers' compensation insurance if you had ANY full- or part-time employee on the payroll.

In California, even a single employee met the threshold for requiring workers' comp.

There was an exception to the pre-'23 rule, and that was for roofing (C-39) contractors, who were required to carry workers' comp insurance, even if running a business solo with no employees.

CA Senate Bill 216, aka SB216, went into effect in January 2023, changing the requirements for contractors without employees.

Now, licensed contractors in CA are required to show proof of workers' compensation insurance whether they have employees or not.

CA is rolling SB216 out in phases. The Contractor State License Board requires proof of workers' comp from contractors with the following license classifications effective 2023:

  • C-8 Concrete
  • C-20 HVAC
  • C-22 Asbestos Abatement
  • D-49 Tree Service

Effective in 2026, the second phase of SB216 goes into effect and applies to ALL remaining contractor license classifications.

Fail to carry workers' comp, and the CSLB will not renew your contractor's license.

What Does Workers' Comp Cover?

While it may feel like an unfair requirement, workers' compensation insurance is necessary to protect the hardworking men and women who help you build your business. Workers' comp provides coverage for employees in the event of an injury or illness resulting from the work they do.

Workers' comp insurance is designed to cover the costs of:

  • Medical care and treatment
  • Benefits for temporary or permanent disabilities
  • Ongoing care
  • Lost wages
  • Funeral costs

The author of CA SB216, Senator Bill Dodd, D-Napa, states the bill was necessary due to the tendency of small contractors to claim they have no employees while hiring day laborers or undocumented workers, none of which are covered in the event of a work-related injury.

Get a Quote for Workers' Compensation Coverage for Your Business

Required: Commercial Auto Insurance

Another legally required contractor insurance policy is commercial auto insurance. Commercial auto covers the vehicles owned or used by your contractor business (as well as the employees who drive them).

Personal auto insurance policies aren't designed to cover work trucks and other vehicles used for business purposes.

If you are using a work vehicle to help you run your business and get into an auto accident while transporting tools to a job site, for example, there's a high  chance your claim would be denied. Worse yet, your personal auto carrier could cancel your existing auto coverage in addition to denying your claim, making it even more difficult (and more expensive) to find coverage down the road.

What Does Commercial Auto Cover?

Commercial auto insurance covers your business' vehicles and liability coverage for other people and property that may be injured or damaged from an accident. That coverage can include:

  • Collision loss: damage from auto accidents
  • Comprehensive loss: damage from non-collision causes
  • Bodily injury coverage: injury to 3rd party persons when you're at fault
  • Property damage coverage: 3rd-party accident-related damage to someone else's vehicle, home, or belongings when you're at fault

Auto insurance is required to operate a vehicle, and, if your business owns or operates your vehicle while performing your paid service, you'll need to carry commercial auto on top of personal auto insurance.

Should Have: General Liability Insurance

While it's not required by state law, carrying general liability insurance should be at the top of your priority list.

General liability insurance protects your business against the high cost of 3rd-party injuries or property damage. It can help prevent you from paying out of pocket for medical bills, repairs, and even legal action arising from someone getting hurt as a result of your business operations.

The Harford conducted an analysis of insurance claims filed by small business owners over a five-year period and revealed that 40% of small businesses were likely to incur a property or liability loss within the next ten years.

Third-party injuries, slips and falls, and reputational damage were among the top 10 most frequent insurance claims. The most costly claims resulted from reputational damage (average claim size $50,000), which is included in general liability coverage.

What Does General Liability Cover?

General liability (GL) insurance for contractors can help you cover the cost of an injury or property damage to a non-employee resulting from your business operations. If a homeowner wanders through a job site and trips on a power cord, GL is meant to cover their injuries. If one of your workers accidentally sends a geyser of gravel shooting through the air and a million tiny rocks shatter a neighbor's windshield, the property damage is covered, too.

As mentioned above, GL policies can help you cover the cost of reputational damage, including copyright infringement, slander, and libel. GL coverage typically includes claims for:

Third-party injuries

  • Third-party property damage
  • Completed products claims
  • Reputation injury
  • Copyright infringement

What Contractor Insurance Coverage Do YOU Need?

These above-mentioned contractor insurance policies are the ones you're required to carry (plus one you should carry if you operate any type of business). But that's not an exhaustive list of the types of contractor insurance policies available to protect you and your business against unexpected and unintended events.

Every business is different, and your contractor insurance coverage should be tailored to your unique business model. Let the contractor insurance professionals at Aegis Insurance Markets help you put together the best package of insurance policies to help you defend your business. Get a free quote or contact us for more information today.




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