Washington State Requirements
The Washington State Department of Labor and Industries (L&I) requires that all contractors carry insurance and a surety bond. Liability coverage is required with limits of $200,000 in public liability and $50,000 property damage, or a $250,000 combined single limit. Most insurers offer liability limits starting at a $500,000 combined single limit, and at least $1,000,000 is recommended. Not only does it offer more protection, it can also help meet customer, landlord, and general contractor insurance requirements. A bond in the amount of $6,000 is required for specialty contractors, and $12,000 is required for general contractors. Electricians and plumbers are examples of specialty contractors. The difference in premium between a $6,000 and $12,000 bond is negligible, so if a contractor is on the fence, we always recommend a $12,000 bond, as it will give the contractor more flexibility in the work they perform. In general, insurance covers certain accidents, whereas a bond covers certain monetary losses suffered by the customer. Unlike insurance, bond claim payouts must be paid back by the contractor.
How Are Contractor Insurance Policies Rated?
Contractor policies are rated either by annual gross revenue, or by wages and subcontractor costs. There is typically a flat wage basis for each owner ($17,800 is common), and the maximum chargeable wages per employee is $600 per week, or $31,200 per year. When policies are initiated, and when they renew, contractors must provide projections (estimations) for the upcoming year. After that year is up, the contractor may be audited, and if they earn more than projected, they must pay additional premium. If they earn less than projected, it usually does not result in a refund.
Contractors may work for other contractors or businesses, or at commercial buildings. These entities will often have insurance requirements. The requirements could be very easy to meet, such as providing an insurance certificate demonstrating a policy is in force with the required coverage limits. Or the requirements could be more difficult. Examples are auto coverage, umbrella coverage, employer liability (stop gap), additional insured status (blanket or scheduled), additional insured with respects to completed operations, primary and noncontributory, waiver of subrogation and aggregate limits of insurance. These complex requirements may necessitate an increase in coverage or additional policies, which increases premium.
Construction Defects and the Your Work Exclusion
Most contractor insurance policies include a “your work” exclusion. It essentially excludes coverage for the work that the contractor has completed. For example, if a contractor builds a wall, and that wall falls on a car, the car would be covered, but the wall that was built would not, as this would be considered a construction defect. However, this exclusion should not apply if there are multiple subcontractors on a project, and one subcontractor damages work another subcontractor performed. So if one subcontractor installs windows incorrectly, and rainwater damages floors another subcontractor installed, the window subcontractor’s policy will not pay to repair the windows, but should pay to repair the floors. It is of course important to ensure all subcontractors provide the general contractor with certificates and additional insured endorsements, so if the general contractor is brought into a claim or lawsuit stemming from a subcontractor’s work, they can take advantage of that subcontractor’s coverage. Additional coverage for “your work” can be obtained through a professional liability coverage, however this coverage is relatively expensive.
Contact Chris Elliott Insurance Agency!
We insure general contractors, builders, developers, remodelers, flippers, roofers, electricians, plumbers, painters and landscapers. Not only can we meet L&I insurance and bond requirements, but we can also offer coverage for tools and vehicles, and we produce certificates within hours. Our agency offers special rates and coverage on plumber insurance, electrician insurance, and landscaper insurance. We access insurers brokers cannot, and often offer superior premiums and coverage.