The premiums for General Liability policies for builders are usually based on six major components.
The first is that there’s a charge made for each active owner by classification code of work performed. The typical classification codes for owners of building companies include executive supervisor, outside sales, or residential carpentry in some cases if the owner performs labor or stays on the jobsite to directly supervise work. Unlike Workers’ Compensation, the class code for Executive Supervisor is actually more expensive than the class code for Residential Carpentry. Under the General Liability rating rules, the owner is assigned an assumed payroll, usually $24,100. It’s important to note that owners can’t exclude themselves from coverage under General Liability like they can under Workers’ Compensation.
The second component is payrolls paid to executive supervisor employees.
The third is payrolls paid to other employees by classification code of labor performed.
The fourth is amounts paid to uninsured subs for labor by classification code of labor performed.
The fifth and most expensive for builders, is total cost of labor and materials paid to insured subs. Please note that some carriers will also include builder provided materials in total cost. This is the most expensive classification because the total cost for labor and materials represents such a high number. Based on our years of experience, we’ve found a good rule of thumb for estimating the total cost paid to insured subs for labor and materials for the typical builder. You take total projected annual sales less lot costs and multiply the difference by 40%. This has proven to be very accurate.
Many builders want to know why there’s even a charge under General Liability for using insured subs? One reason is because the builder will always be shot gunned into any lawsuit, even if the sub is 100% negligent and carries his own General Liability. Even if this is the case, the builder’s insurance carrier will still spend significant dollars to mount a legal defense. The second reason is because the builder’s General Liability policy may cover certain types of property damage that is not covered under the negligent sub’s General Liability policy. For these reasons, a charge must be made under the Builder’s policy even if the sub is insured.
The sixth component is ownership of dwellings, acreage of real estate development property, and acreage of vacant land. Ownership of all of these results in exposure to lawsuit and a charge is made under a separate classification code for each.