Learning from Other Contractors' Expensive Lessons
After working with thousands of California contractors over the years, we've seen the same mistakes cause serious problems again and again. Here's what to avoid.
Mistake #1: Buying Minimum Coverage to Save Money
Saving $500 on premium by carrying inadequate limits is false economy. One serious claim can exceed $1 million. If your policy maxes out at $300,000, you're personally responsible for the rest.
A contractor I worked with years ago carried minimum GL limits to save money. A worker fell through an unsecured floor opening and sustained permanent injuries. The claim settled for $1.2 million. He had $300,000 in coverage. He lost his house, his equipment, and his business.
Match your limits to your actual exposure, not your minimum legal requirements.
Mistake #2: Calling Employees Independent Contractors
Misclassifying workers creates massive exposure. Workers' comp audits catch this, and the back-premium plus penalties can be staggering. If someone you've called an independent contractor gets hurt and has no coverage, you're liable for their injuries.
Beyond insurance, the IRS and California pursue misclassification aggressively. The financial and legal consequences stack up fast.
If someone shows up when you tell them to, uses your tools, and does what you direct them to do, they're probably an employee regardless of what your paperwork says.
Mistake #3: Letting Coverage Lapse
A gap in coverage creates multiple problems. The Contractors State License Board can suspend your license for insurance lapses. Claims during uninsured periods come out of your pocket. When you reinstate coverage, you'll pay higher premiums and lose any claims-free discounts you'd earned.
Set up automatic payments. Work with an agency that monitors renewals and sends reminders. A 30-day lapse can cause problems that take years to fix.
Mistake #4: Assuming Subcontractors Are Covered
"They said they have insurance" isn't verification. Collect certificates before work begins. Verify the limits meet your requirements. Confirm your company is listed as additional insured.
When an uninsured or underinsured sub causes damage or injury, you're on the hook. Their lack of coverage becomes your problem. Last year a GC client learned this the hard way when a sub's ceiling installation failed and damaged $80,000 worth of the owner's equipment. The sub had let his GL lapse. Our client's policy ended up paying.
Mistake #5: Signing Contracts Without Reading Insurance Requirements
Construction contracts include insurance provisions that specify coverage types, minimum limits, required endorsements, and compliance deadlines. Signing without reviewing these sections leads to problems.
You might discover after signing that you need endorsements your policy doesn't include, limits higher than you carry, or specialty coverage you've never purchased. Now you're scrambling, paying rush fees, or worst case, unable to comply with a contract you've already signed.
Have your agent review insurance requirements before you sign. Fifteen minutes of review beats weeks of problems.
Mistake #6: Waiting to Report Claims
Contractors sometimes hope small incidents will go away on their own. They won't. Delaying claim reporting can result in denied coverage for late notification, lost evidence and unavailable witnesses, and worse outcomes from delayed response.
Report every incident immediately, even minor ones. Let the insurance company decide whether it's significant. That's their job.
Mistake #7: Underestimating Payroll on Workers' Comp
Low-balling your payroll estimate to get a lower deposit sounds smart until the audit. When auditors discover actual payroll exceeding your estimates, you get a large bill for the difference. Significant underreporting can trigger fraud investigations and policy cancellation.
Give accurate estimates. If business picks up mid-year, notify your carrier. Adjust as you go rather than getting hammered at audit time.
Mistake #8: Using Personal Vehicles for Business
Personal auto policies exclude regular business use. If you're visiting job sites, hauling materials, or transporting employees in your personal truck, your personal policy probably won't cover an accident.
The claim denial letter is when most contractors learn about this exclusion. By then it's too late.
Get commercial auto coverage for all business vehicles. Add hired and non-owned coverage for employees using personal vehicles for work errands.
Mistake #9: Operating Without Umbrella Coverage
Your primary policies have limits. When claims exceed those limits, you pay the difference from your own assets. Umbrella policies provide cost-effective additional protection.
A $1 million umbrella might cost $1,000 a year. That's cheap compared to what you could lose in a major judgment. If you're doing commercial work or have significant personal assets, umbrella coverage isn't optional.
Mistake #10: Not Actually Reading Your Policy
Most contractors file their policies and never look at them again until there's a claim. By then, discovering you lack coverage for something you assumed was included is too late.
Policies have exclusions. Endorsements modify coverage. Limits apply in specific ways. Understanding what you bought before you need it prevents unpleasant surprises.
Ask your agent to walk through your policy's key provisions and exclusions. Know what you have.
Getting Your Program Right
Insurance is one of the most important investments you make in your business. Don't treat it as an afterthought or a box to check.
Work with specialists who understand construction risks. Get regular reviews as your business evolves. Fix problems before they turn into claims.
Common Questions
What's the first step if I've made some of these mistakes?
Get a comprehensive review of your current program. We identify gaps and recommend solutions at no cost. The sooner you address problems, the better.
How often should I review coverage?
At minimum annually, at renewal time. Also review whenever you add services, hire employees, buy equipment, or take on larger projects. Your coverage should match your current operation.
Can you help if my situation is complicated?
Yes. We regularly work with contractors who have claims history, coverage gaps, misclassification issues, and other problems. These situations require more work, but solutions exist.