One of the most commonly asked questions is ‘how much Commercial General Liability Insurance do I need?’ Well, that depends. There are a few considerations to make first.
For construction companies, the limit is often determined by the requirements of the contracts they enter into. This is not always the best train of thought, as contractors liability should not be based on one job. First, consider what kinds of liability claims a liability policy will cover.
- Bodily Injury
- Property Damage
- Loss of Business Income or Monetary Losses
- Environment (to be discussed at a later date)
A liability limit for the above are easily quantified by calculating a maximum probable loss amount. Consider a roofing contractor working on a large retail mall. If the contractor is responsible for starting a fire and a large part of the building is damaged and many aspects of the business are shut down for an extended period of time, the property damage and loss of business income could be in the millions. In this case, carrying a limit of $10-20 million would be prudent. The same consideration applies to an electrical contractor working in a large manufacturing plant. Damages and downtime from an accident would be significant. Now in the case of a small plumbing contractor working in homes, the exposure is much less, especially with respect to property damage or monetary loss.
When purchasing a liability policy, the limit for bodily injury and property damage is the same. However, calculating maximum probable loss amounts for a bodily injury claim is much more difficult, if not impossible. Experience from other types of liability claims such as automobile accidents shows that younger claimants are awarded more damages because they have to live with their injuries longer. A lifetime of care for a permanently injured person can run into the millions. Based on insurance case law, a single bodily injury claim has been quantified in excess of $10 million.
The best advice to contractors on how much liability insurance to carry is first consider how much exposure you have for property damage losses and monetary losses, then consider how much you can reasonably budget for. In most cases, buying higher limits is very affordable. Lastly, the best way to buy higher limits of liability coverage is through an umbrella policy. This provides excess coverage for both general liability and auto liability.