Is Your Standard $1 Million / $2 Million General Liability Policy Enough?

In today’s economy, where the word “inflation” is part of everyday conversations, it’s crucial to consider how these economic changes impact all aspects of our lives—including insurance coverage. For residential and commercial contractors, an understanding of how this economic shift affects your industry is more important now than ever. Are your current policy limits sufficient to cover the increased risks? 

The Rising Costs of Property and Liability

As inflation continues, the value of property and the cost associated with damages have soared. Here’s what contractors need to consider:

• Increased Property Values: More homes are valued over the $1 million mark, not just in luxury markets but increasingly in standard neighborhoods. If a mishap occurs, like accidentally causing a fire, you might be liable not just for the building but also for substantial personal property and additional living expenses if the home is a total loss.
• Costlier Injury Claims: Even seemingly minor injuries can lead to claims approaching or exceeding $1 million due to rising medical costs and larger settlements. What happens if the injury is severe or if multiple parties are injured?

Examples to Consider:

• A small electrical fire that spreads, resulting in major damage to a high-value home.
• A slip and fall accident on a job site where the medical complications result in long-term disability.

Navigating Risks in Residential and Commercial Projects

• Residential Construction Risks: When working on homes that are now worth significantly more, the potential financial liability from any damages can quickly exceed the standard $1 million / $2 million liability policy. As home values rise, so does the potential financial liability for any damage caused by your work. If you’re working in a neighborhood where homes are now worth $1.5 million or more, your existing coverage limits might be insufficient in the event of a claim. Additionally, more homeowners are investing in high-end finishes, smart home technology, and luxury amenities, all of which increase the potential costs if something goes wrong.
• Commercial Construction Risks: Commercial projects often involve more complex systems and higher-valued properties. Mistakes can lead to substantial damages or business interruptions that rack up immense costs. For example, a plumbing mishap in a high-rise office building can result in extensive water damage that affects multiple floors, leading to costly repairs, lost income for tenants, and potential business interruption claims. These damages can easily exceed the limits of a standard general liability policy.

Commercial Auto Liabilities: A Growing Concern

With roads busier than ever and personal injury attorneys aggressively pursuing claims, the risks associated with commercial vehicles have escalated:

• Litigation Financing: Third parties often fund personal injury claims, equipping claimants with the resources to hire expert witnesses and pursue long, costly legal battles. This trend has resulted in increased settlement sizes and higher verdicts in commercial auto accident claims. Even a relatively minor accident involving one of your work vehicles could result in a substantial claim that exceeds your current auto liability limits.
• Increased Settlement Sizes: Settlements in commercial auto accident claims have been rising, often reaching figures that standard policies don’t adequately cover. The legal environment has shifted toward larger settlements, especially in cases involving commercial vehicles. This means that even if you’re confident in your driving record and safety protocols, the financial exposure from a single accident could be far greater than you anticipate.

Are You Adequately Protected?

It’s vital for contractors to regularly review their insurance policies and ensure that coverage limits align with the current economic environment and the associated risks. Consider speaking with your insurance agent about increasing your policy limits or exploring umbrella policies to provide additional coverage.

Conclusion:

Take a close look at the types of projects you’re working on, their value, and the potential risks involved. Are you frequently working on high-value homes or commercial properties? Are your employees driving in high-traffic areas?

While a $1 million / $2 million policy might have been sufficient in the past, inflation and rising costs mean that it may no longer be adequate. Consider increasing your limits or add an umbrella policy of $2 million / $4 million or even $5 million / $10 million, depending on your exposure.

Don’t wait until a claim exceeds your policy limits to find out that you are underinsured. Regularly assessing your coverage and adjusting it to meet current realities is not just good practice—it’s essential to protecting your business and livelihood. If you’re unsure about your coverage needs, reach out today for a comprehensive review.