Starting your career as a construction contractor in California? Or maybe you’re a seasoned contractor who has recently had liability issues crop up unexpectedly? Or maybe you’ve got an eye out for legislative changes that will require contractors to have general liability insurance.

At any rate, general liability insurance is something that all construction contractors should be familiar with – no matter your specialization, license classification, or area of operation. If you don’t have general liability insurance for your contracting business, this article will get you up to speed on what it is, why it’s important, and why you must have general liability insurance for all projects and businesses going forward.

What is Liability Insurance?

Liability insurance is a type of insurance policy that protects individuals and businesses against the risk of being held legally liable for actions or inactions that cause injury or damage to third parties.

It can protect individuals or businesses from any sort of damage occurring under one’s purview. In other words, liability insurance makes sure your buns are covered in the case of an on-site disaster.

Liability insurance, in practice, is usually applied in the case of legal proceedings. Liability insurance will usually cover the costs associated with legal defense, settlements, or judgments awarded to the injured party, as well as any additional costs that relate to the incident.

Basically, general liability insurance makes it so you, the contractor, aren’t personally or financially responsible for anything that goes wrong on a job site.

The reality is that it’s not a question of if, but when something goes wrong on a construction site – liability insurance is there to protect you from being personally liable when that happens, protecting you from financial losses.

What is General Liability Insurance And How Is It Different From Regular Liability Insurance?

General liability insurance is a subset of liability insurance. General liability insurance is specifically designed to protect businesses, including contractors and contracting businesses. When a company has general liability insurance, the policy provides coverage for third-party claims of bodily injury, property damage, and personal and advertising injury.

As we’ve previously established, general liability insurance is the type of insurance that contractors should be looking for to protect their contracting business. General liability insurance is essential for contractors as it protects them from financial losses resulting from accidents or injuries that occur on the job site or as a result of their operations – an inevitability in this industry!

Liability Insurance vs. Contractor’s/Surety Bonds

If you’re a contractor, you should already be intimately familiar with contractor’s bonds aka surety bonds – but what’s the difference between a surety or contractor’s bond and liability insurance?

The primary difference between contractor bonds and liability insurance is protected by these legal frameworks.

Surety bonds are required by the CSLB as they protect the consumer from malpractice on a contractor’s side of things. Surety/contractor bonds give the homeowner or property owner legal and fiscal recourse if a contractor does not fulfill their end of the contract, as the contractor bond company pays the client for their losses.

Unlike the contractor’s bond, which exists to protect the consumer, liability insurance is there to protect the contractor. It protects the contractor in the event of injury on a job site where the contractor is usually liable for damages, by essentially taking the responsibility of reward and compensating the parties who are damaged by the accident or issue.

In short: contractor’s bonds protect the client, customer, or consumer of construction services. It ensures that the contractor will fulfill their end of the bargain as laid out in the contract. Meanwhile, liability insurance protects the contractor from being pursued for financial damages in the case of a job site accident.

What Does Liability Insurance Cover?

Liability insurance for contractors typically covers:

• Bodily Injury: Medical expenses and legal fees associated with injuries to third parties.
• Property Damage: Costs to repair or replace damaged property belonging to third parties.
• Product and Completed Operations: Claims related to the contractor’s work after the project is completed. There may be overlap here with a contractor’s bond, in some situations. Liability insurance adds another layer of protection for contractors.
• Personal and Advertising Injury: Claims of slander, libel, or copyright infringement. This is pretty common in the construction industry, where advertising laws are rarely enforced.

Examples of incidents where liability insurance comes into play in construction include accidents resulting in injuries to clients or bystanders, damage to neighboring properties, and – rarely – legal disputes over advertising practices​​.

Do You Need Liability Insurance to be a California Contractor?

No, contractors in California are not legally required to have liability insurance to operate legally – although the CSLB highly recommends it!

Not having liability insurance for your business as a contractor is practically a guaranteed recipe for disaster. Life-destroying consequences lurk around every corner on construction job sites – leaving you open to extreme pain when something inevitably goes wrong.

Considering the enormous financial costs related to construction job injuries and damages, you could be looking at thousands or even millions of dollars for any issue, liability insurance is a powerful safeguard against financial and legal penalties that come with construction.

There’s also the possibility that these requirements could change in the near future. Considering the recent changes to bond limits and the requirement for all contractors to have workers’ compensation insurance – even without employees – by 2026, there’s a good chance that the CSLB will also require contractors to have liability insurance.

Don’t wait until liability insurance becomes mandatory. Paying for insurance stinks, but the reality is that you will run into a workplace incident at some point in your career, and when the court comes a-calling, you’re going to wish you had liability insurance. Trust us – it’s worth the money!