Liability vs builder's risk vs workers' comp

The three lines side by side

What each one usually leaves out

• CGL generally does not pay to repair or replace the contractor's own faulty work, and it does not cover the contractor's own employees, who are covered by workers' comp. It does not cover autos, which need a commercial auto policy.
• Builder's risk usually ends at completion or occupancy as the policy says, and commonly excludes faulty design or workmanship itself (while often covering the damage that results), wear, and in many policies flood or earthquake unless added.
• Workers' comp is usually the employee's only remedy against the employer for a workplace injury, in exchange for no-fault benefits. It does not cover independent contractors, though a general contractor can end up liable for an uninsured sub's workers in many states.

Benefit levels, who must carry coverage, and who writes it are set state by state, so never assume one state's comp rules apply everywhere.

One fire, three claims

A propane heater tips over on a partly framed building at night. The fire damages the framing, spreads to a neighbor's fence and parked car, and a carpenter who comes back to put it out is burned.

• The framing and stored lumber: builder's risk.
• The neighbor's fence and car: the contractor's general liability.
• The carpenter's medical bills and lost wages: workers' comp.

A worked premium example with invented numbers

Workers' comp premiums are figured on payroll. Each job class has a rate per $100 of payroll, and the contractor's experience modification factor raises or lowers the premium based on its own claims history compared with similar employers. A mod of 1.00 is average; below 1.00 is better than average.

A contractor has $400,000 of carpentry payroll at an invented rate of $8.50 per $100, and a mod of 0.85.

• Payroll in hundreds: 400,000 / 100 = 4,000
• Manual premium: 4,000 x 8.50 = $34,000
• With the mod: 34,000 x 0.85 = $28,900
• Check: 400,000 x 0.085 = 34,000, and 34,000 - (34,000 x 0.15) = 34,000 - 5,100 = 28,900

At a mod of 1.20 instead, the same payroll would cost 34,000 x 1.20 = $40,800, which is $11,900 more. Real rates depend on the state, the class code and the insurer.

Contract terms that go with insurance

• Certificate of insurance: evidence of the policies, usually required before work starts.
• Additional insured: the owner or general contractor is added to the sub's CGL policy for claims arising from the sub's work.
• Waiver of subrogation: the insurer agrees not to sue the other party after paying a claim. Builder's risk policies often carry one so the owner and contractors do not sue each other over a covered loss.
• Indemnity (hold harmless) clause: shifts responsibility for certain losses between the parties. How far it may go is limited by state law.

Common mix-ups

• Expecting CGL to fix your own work. It covers harm to others, not the cost of redoing defective work.
• Treating a bond as insurance. A surety bond protects the obligee, and the contractor repays the surety. See bid bond vs performance bond vs payment bond.

On the NASCLA exam

Insurance falls under Procurement and Contracting Requirements, 31 of the 115 scored questions. Tab the insurance topic in the NASCLA Contractors Guide to Business, Law and Project Management, and ask who suffered the loss: a third party, the work itself or an employee.

Practice it

See how premiums feed overhead in contractor job costing and overhead, and how entity choice affects personal exposure in business entity choices for contractors. For the paperwork, see certificates of insurance and additional insured status, and the OSHA 300 log for recording work injuries.

Take the free 10-question check

Start the free 10-question check. It is weighted to the twelve NASCLA subject areas, needs no signup and explains every answer, so you see which area to study first.

The NASCLA Commercial course has a lesson for each of the 12 subject areas that shows which listed reference to open and how to apply it, original practice questions with every answer worked, and four timed practice exams of 115 questions on a 330-minute clock. Your scores come back by subject area, so you know where the next study hour goes. See the course.

Not affiliated with or endorsed by NASCLA or PSI. NASCLA and PSI are named only to identify the exam and its test vendor.

Sources

Show the list

• PSI Candidate Information Bulletin 1458, content outline and reference list, updated 7 Jul 2026. Retrieved 5 Nov 2026.
• NASCLA Commercial Exam, NASCLA. Retrieved 5 Nov 2026.