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Insurance & Bonding

Liability Insurance

In Plain English

Insurance that pays for damage or injuries you cause to others.

Definition

Liability insurance is a broad category of insurance that protects a policyholder against claims from third parties for bodily injury or property damage caused by the policyholder's operations, products, or actions. In construction, liability insurance encompasses commercial general liability, professional liability, auto liability, and employer's liability. Most project owners require contractors to carry minimum liability limits as a condition of the contract.

Why It Matters in Bidding

Liability coverage is a gating requirement on nearly every bid; failing to meet specified limits or additional-insured language can render an otherwise low bid nonresponsive. Premiums are a real estimating cost that estimators must build into markup or general conditions, and inadequate coverage exposes a contractor to claims that can exceed a project's entire profit.

Example

Before submitting a school-district bid, the estimator confirms the company carries the required $2 million general liability limit and can name the district as an additional insured, then includes the premium cost in its general conditions.

Related Terms

Commercial General Liability (CGL)Umbrella PolicyWorkers' Compensation

Frequently Asked Questions

Owners require minimum limits to ensure a contractor can cover third-party injury or property-damage claims arising from the work, shielding the owner from exposure. Bid documents specify limits, additional-insured status, and waivers of subrogation; failing to meet them can make a bid nonresponsive regardless of price.
Premiums are an overhead cost that estimators recover through markup or general conditions. Higher required limits, hazardous scope, or a poor loss history raise premiums and push the bid up. Project-specific or wrap-up policies may also be required and must be priced explicitly rather than absorbed.
It obligates the contractor to extend its liability policy to cover the owner, and often the lender or GC, for claims arising out of the contractor's work. Bid specs commonly demand this plus a certificate of insurance before notice to proceed, so it must be verified before committing to a price.

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