Business Interruption Insurance for Contractors

Running a contracting business is inherently risky. Running any business, for that matter, comes with its own inherent set of risks, but unfortunately, contracting businesses do err on the higher side of risks. That is because they have to deal with heavy and expensive machinery day-to-day, having to satisfy clients, and staying ahead of your competition. At the same time, you might also be handling working relationships with subcontractors and third-parties. It’s a lot – and even with all that, there’s no guarantee your business will succeed. Anything could happen during your day-to-day business operations.

Enter business interruption insurance for contractors. You may have heard of it, but perhaps never considered it as a general contractor. Within a fully comprehensive contractors insurance policy, business interruption insurance is perhaps one of the most critical coverages you can purchase.

In this blog post, we’ll go over the ins and outs of business interruption insurance for contractors, how it can be an asset to your business, and some benefits of adding it to your insurance repertoire.

What is Business Interruption Insurance for Contractors?

Regardless of the type of contracting business you have, business interruption insurance for contractors is a critical form of coverage designed to protect you in the event your business faces an unexpected disaster wherein it is forced to close its doors temporarily. This could be for any (insured) reason – a tornado destroying your warehouse, a fire that takes out your commercial automobiles stored in a garage. Any disastrous event could force you to temporarily close up shop. Business interruption insurance for contractors ensures that you won’t have to stay closed – permanently.

What does business interruption insurance cover?

Business interruption insurance for contractors is designed specifically to cover you in the event your business is unable to operate due to a covered loss. It can cover fixed costs, such as:

• Utility bills
• Taxes
• Employee wages
• Lost earnings (based on your last annual gross revenue)

Generally, coverage from business interruption insurance begins when the loss occurred. It will remain until the time you can reopen your business again, but policies can vary.

How does business interruption insurance “activate?”

For your business interruption insurance to technically “trigger” your situation should meet the following conditions:

• The accident that occurred is because of a covered peril in your policy.
• The accident (or disaster/social unrest) resulted in commercial property damage, inaccessibility, or destruction.
• The property damage that occurred ended up causing an interruption in business.

As you can see, some conditions must exist for a loss to be covered. However, with the right insurance policy, you can run your operations with peace of mind, knowing potential losses may be covered by your business interruption insurance.

Business Interruption Risk Management for Contractors

The nature of any contracting business is very risky, which is why it’s imperative to implement adequate risk management strategies and ensure that your business can stay afloat for as long as you need it to.

That being said, things happen. Insurance is part of risk management and is there for you if all else fails. To mitigate your chances of disaster and keep your rates low, consider implementing the following:

• Contractual risk allocation: Ensure you have clear contractual terms and risk allocation clauses that can help to minimize exposures and avoid disputes. All general contractors should have specific language that identifies risks and allows them to assign responsibilities appropriately.
• Insurance coverage: Subcontractors should be required to have similar coverage as general contractors to minimize risk exposure.
• Project planning/management: Implementing adequate project planning/management can mitigate the likelihood of disasters and help to manage risks more effectively.
• Risk identification/assessment: This is an integral part of implementing a risk management strategy. Contractors need to regularly review and determine the likelihood and severity of risks, both prior to and during a project. This can aid in identifying potential issues.
• Quality assurance and control. Always maintain strict quality insurance and implement control procedures to reduce the risk of faulty workmanship, materials, and equipment. Include regular inspections, quality control measures, and testing.
• Crisis management: If all else fails and a crisis does occur, ensure that contractors are aware of what the plan is to ensure damage is minimized and the safety of all parties is prioritized.

The nature of every contracting business is very different, but implementing some of these strategies can help any general contractor to reduce the risk of potential losses, avoid disputes, and guarantee the success of their various projects – and their businesses.

Insurance for Contractors: What Do I Need?

Keep in mind that business interruption insurance for contractors is just one aspect of what should be an all-encompassing insurance plan, and should not exist standalone. In fact, purchasing business insurance as a standalone endeavor isn’t what’s considered a standard practice in the insurance world. This is 100% due to the fact that business interruption only covers one portion of a loss during a disaster, accident, or social unrest – and the remaining losses would be left uninsured.

So, even with business interruption insurance solo, your business may not be able to reopen. Since it would not be able to cover repair or restoration costs, replacement costs, liability claims, or anything else. It would only cover ongoing costs during a period of restoration.

For a fuller, more comprehensive coverage plan, consider these added coverage(s) in addition to business interruption insurance for contractors:

• Commercial property insurance
• Commercial vehicle insurance
• Commercial general liability insurance
• Errors and omissions insurance
• Equipment breakdown insurance
• Workers’ compensation insurance
• Builder’s risk insurance

How much does business interruption insurance cost?

Great question! As you would imagine, the answer is not easy to answer in a blog, as every business is different. No two companies are the same, some companies are very small, some are very large. This means the type of trades may vary, the number of employees varies, among other items.  Business interruption coverage is typically priced/rated on annual sales and how much coverage you truly need.

Our agency has a standard business income worksheet that we go through to determine the amount of coverage needed in case of a loss. In simple terms, the worksheet includes items like payrolls, sales, continuing expenses, cost of goods sold, and a formula. This formula is used to determine what extra expenses a business would be faced with should a large loss occur.  Extra expenses would be things like rental of temporary premises, rental of temporary equipment, cost of cleaning/modifying temporary location, communication expenses to let your customer base know of changes and moving expenses.  We’ve seen the cost of this coverage anywhere from $100 for micro companies all the way to $35,000+ for companies with over 175 employees.

These are just a few samples. For a fuller description of the various coverage(s) you might need, don’t hesitate to consult with a Hitchings Insurance team member. They can give advice on what your construction business might need. Give us a call or get a free quote today.