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Effectively Managing Liability with An Excavation Insurance

by James Musoba
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The construction business has its share of risks. Therefore, contractors must take appropriate action to protect themselves. Even a minor mishap can represent a costly liability payout. As such, having adequate insurance coverage can minimize the negative impact of an incident.

Moving earth can represent a potential risk ranging from proper soil compaction to third-party property damage. In which grounds, excavation contractors must always be ready for possible liability issues.

This article will explore the appropriate insurance coverage construction companies need. Also, this article will cover the specific insurance coverage excavation contractors need to ensure safe operations.

Why Contractors Need Insurance

Excavation contractors face their share of risks. Consider this situation:

An excavation contractor inadvertently hits an underground water pipe. The rupture leads to serious flooding at the job site while disrupting the entire neighborhood’s water supply. 

In this scenario, the contractor would be liable for repairs to the underground pipes plus compensation for disrupting the neighborhood’s water supply. As such, the consequences of work-related trouble motivate contractors to seek appropriate protection.

Nael Bunni (2003), author of the renowned title “Risk and Insurance in Construction,” society’s awareness pertaining to risk in the construction industry has permeated the business landscape. According to Bunni, “This awareness occurred as a result of some major accidents in various parts of the world, the consequences of which had a powerful impact on the public mind.”

Now, more than ever, contractors need to have adequate protection. Given the public’s heightened perception of risk, the likelihood of litigation resulting from workplace accidents is at an all-time high. Consequently, excavation contractors must take appropriate action to protect not only their businesses but their clients and third parties.

Type of Insurance for Excavation Contractors

The excavation business is highly complex. It involves several elements such as heavy machinery and specialized equipment. It also consists of several people, from machine operators to workers on the ground. Therefore, excavation insurance should encompass the various elements in excavation work.

General Liability Insurance

General Liability Insurance (GLI) covers a broad range of liability issues. It is “general” as it covers the most common issues businesses face. For example, damage to a neighboring roof as a result of equipment falling would constitute a general liability issue. Consequently, the contractor would need to pay the cost of replacing the damaged equipment and repairs to the roof.

GLI offers general coverage for workers’ compensation, property damage, and equipment replacement. Therefore, GLI provides a basic yet effective safety net for excavation contractors. GLI coverage generally ranges from $250,000 to $2 million. Excavation contractors should get the maximum coverage afforded by a standard GLI policy. GLI premiums for excavation insurance vary from state to state. Nevertheless, GLI premiums range from $1,500 to $3,000 annually for coverage going from $1 million to $2 million. 

Workers’ Compensation

Workers’ compensation claims refer to bodily injuries stemming from work-related incidents affecting the employees. 

Consider this situation:

A worker on the ground falls due to moving ground. The worker suffers a compound fracture to a leg requiring surgery and extensive rehabilitation. Workers’ compensation coverage can assist with legal fees in case of an employee lawsuit. It can cover medical costs, loss wages during treatment and recovery, and even death benefit will be granted to the employee’s beneficiary should the incident result in death. 

Workers’ compensation premiums can vary according to the company’s accident history, annual gross payroll, and the risk involved per job. On the whole, separate workers’ compensation coverage can range between $1 and $2 per every $100 in payroll. To know more about which claims can be covered and which ones may be denied, head over to Farmerbrown for a more elaborate discussion.

Commercial Auto Insurance

Contractors that operate trucks, vans, and personal vehicles for business purposes need commercial auto coverage. All states mandate commercial auto coverage for vehicles belonging to a company. While minimums vary, commercial auto should cover third-party property damage and bodily injury protection. 

It is worth noting that commercial auto insurance does not cover personal vehicles unless listed on the policy. As such, vehicles and drivers must be on the policy to receive coverage. Here is an example of a common exclusion:

An employee uses their personal vehicle to haul materials to the job site. Along the way, the employee has an accident. In this situation, neither commercial auto nor personal insurance would cover the accident. Moreover, there would be no third-party liability or bodily injury coverage. Consequently, excavation contractors must list all their vehicles and drivers to ensure appropriate coverage.

Commercial auto is not often part of GLI. As such, a separate policy may be necessary. Short-term commercial auto policies can cover specific vehicles for the duration of jobs and projects.

Performance Bonds

There are occasions in which local governments require bonds to issue permits and licenses. In particular, these bonds are mandatory when excavating on public roads and lands. Additionally, private property owners may require bonds prior to commencing large-scale projects. 

GLI can cover excavation contractors’ bonds. In general, bonds cost 3% of the total contract value. For contracts below $400,000, bonds are relatively easy to obtain. 

Conclusion

Excavation insurance acts as a safety net during any project. It can protect excavation contractors from costly payouts in case of accident or injury to workers. The overall cost of GLI is quite affordable. Therefore, it makes sense to obtain a policy with an average coverage of $1 million to $2 million. Also, commercial auto and workers’ compensation are mandatory by most states.

To learn more about insurance coverage specifically designed for excavation contractors, you can download a free Contractors Liability e-book and this will come handy should you have technical questions about any commercial type of insurance. 

References:

  1. Brunni, N. G. (2003). Risk and insurance in construction. Routledge.
  2. Odeyinka, H. A. (2000). An evaluation of the use of insurance in managing construction risks. Construction Management and Economics18(5), 519-524.
  3. Ter Haar, R., Laney, A., & Levine, M. (2016). Construction insurance and UK construction contracts. CRC Press.

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