GENERAL LIABILITY: WHAT IT COSTS AND WHY THE AUDIT RAISES IT.
General liability premium is a rate for the contractor's class code multiplied by an exposure base. Depending on the class, the base is payroll, gross sales or the total cost of subcontracted work. The premium paid at the start is a deposit based on an estimate. After the policy ends, the carrier audits the actual payroll, sales and subcontract cost and recalculates the premium. A contractor that grew during the year, or one that paid subs without current certificates of insurance, usually owes more at audit. The cost is real whether or not the bid included it, so the price of the work has to carry it.
The premium is a cost that scales with the work, and the audit is where the carrier finds out how much work there was. This page explains how the premium is built, how the audit treats subcontractors with and without certificates, and what SPM checks. A licensed broker places the coverage and decides limits with you. Contract terms and state law differ, so check your own contract and your own policy.
WHAT IT MEANS.
Commercial general liability, or CGL, is the policy that pays for bodily injury and property damage a contractor's work causes to other people, and its premium is a rate for the contractor's class code multiplied by an exposure base such as payroll, gross sales or subcontracted cost, then recalculated by audit after the policy year.
ISO, the Insurance Services Office, publishes standard general liability forms and many of the class codes and rating rules carriers use. Carriers file their own rates and some use their own forms, so the policy and the audit worksheet from your own carrier are what apply to you.
This page is about cost and cash. How the premium is allocated into a bid is covered on the insurance cost and overhead page, so it is not repeated here.
HOW THE PREMIUM IS BUILT.
The rating basis depends on the class
The premium is the exposure base, divided by the unit the carrier rates in, times the rate for the class code. For many contractor classes the base is payroll. For others it is gross sales. A contractor that sublets work is often rated on the total cost of that work, which includes labor, materials and equipment, and a contractor with more than one class can have more than one base. Example math: $2,000,000 of payroll at a rate of $20 per $1,000 is $40,000. The declarations page lists the classes and bases on your policy, and carriers vary on which base they use for which class.
The class code sets the rate
The class code describes the work, and each code has its own rate and its own base. A concrete contractor and an electrical contractor pay different rates. A code that does not match the work costs money in two directions: a rate that is too high on work the contractor does not do, or a charge at audit for work that is not written on the policy. Auditors check the class codes against the work when they review the books.
Limits, aggregates and the retention
The policy has a limit for each occurrence, a general aggregate and a separate aggregate for products and completed operations. Contracts often set minimums, and some ask for a separate aggregate for each project, which an ISO endorsement called CG 25 03 provides by giving each designated project its own general aggregate. A higher limit or an endorsement is priced by the carrier, and carriers vary. Some policies add a deductible or a self-insured retention. Under a retention the contractor usually pays the first dollars of a claim, including defense costs, before the carrier pays. Under a deductible the carrier can pay first and bill the contractor back. The policy wording decides, and it is a cash question: a $10,000 retention is $10,000 the contractor needs on the day a claim starts.
Occurrence, claims-made and completed operations
Most contractor policies are written on an occurrence form, ISO CG 00 01, which responds to injury or damage that happens during the policy period whenever the claim is made. A claims-made form, CG 00 02, responds to claims first made during the policy period or an extended reporting period, for injury after a retroactive date. Completed operations is the exposure after the job is done. A slab, a wall, a pipe line or a panel the contractor built can cause damage years after the final pay application, and under an occurrence form the policy in force when the damage happens responds. So the coverage has to be in force in the year of the damage, not the year the job closed. State law sets how long after completion a claim can be brought, and it differs.
Additional insured endorsements GCs require
General contractors and owners usually require to be added as additional insureds. ISO form CG 20 10 gives that protection for the contractor's ongoing operations. CG 20 37 gives it for completed operations. They are meant to be used as a pair, and a contract that asks for protection after the work is done needs the completed operations form. Pricing varies. Some carriers include blanket additional insured wording in the base premium and some charge a flat fee. The contract's insurance clause says what is required, so SPM reads it before the bid and not after the policy is issued.
The premium paid at the start is a deposit
The first premium is based on the payroll, sales or subcontract cost the contractor estimated. Standard policy wording calls it a deposit premium. When the policy ends, the carrier calculates the earned premium from the actual numbers. If what was paid is less than earned premium, the contractor pays the difference. If it is more, the carrier returns the excess. The policy also requires the contractor to keep the records needed to compute the premium and to send copies when asked. Some states set a deadline for the audit. New York, for one, requires it within 180 days after the policy expires, with exceptions. A growing contractor that estimated last year's volume owes the difference on this year's work, and the bill can come after the year is closed.
Subcontractors with and without certificates
Auditors ask for the income statement, sales records, tax returns, subcontractor invoices, 1099s and certificates of insurance. When a sub is adequately insured, the work is usually charged on the total cost basis, and one carrier's audit page says it adds a small charge for insured subs because the contractor can still be held responsible for part of the damages. When a sub has no current certificate, carriers commonly count what was paid to that sub as the contractor's own payroll, in a payroll-basis class. One New York court decision described that change in class, and the carrier applied the whole payment, labor and materials together. Carriers set their own test for adequate insurance. Nationwide's audit guidance uses $1,000,000 each occurrence, $2,000,000 general aggregate and $2,000,000 products and completed operations aggregate. A certificate has to cover the dates of the work.
WHAT IT LOOKS LIKE IN DOLLARS.
Example math only. A GC estimates $1,000,000 of subcontract cost at a rate of $10 per $1,000 of total cost, so the deposit is $10,000. The year closes at $1,800,000 of subcontract cost. The earned premium is $18,000 and the audit bills $8,000. If the bids priced only the estimate, that $8,000 was never priced.
Example math only. The same GC paid $300,000 to subs. With current certificates it is charged at $10 per $1,000, which is $3,000. Without them, it is counted as payroll at $20 per $1,000, which is $6,000. The missing paper costs $3,000 in this example, on work the sub's own carrier already covers.
The $8,000 and the $3,000 together are $11,000. On $6M of revenue that is 0.18 percent of revenue. At a 7 percent net margin, profit is $420,000, so the $11,000 is about 2.6 percent of it, and it is due in cash after the year is over.
WHAT WE CHANGE.
SPM compares the classes on the declarations page to the list of jobs and to revenue by type of work. A code that does not match is raised with the broker before the renewal, because a licensed broker is the one who can ask the carrier to change it.
Each quarter SPM compares payroll, sales and subcontract cost so far to the estimate on the policy. When the year is above the estimate, SPM tells the owner what the audit will probably bill and sets aside cash for it each month. The broker can be asked whether the carrier will take an updated estimate.
SPM builds the audit worksheet from the job cost records: payroll by class, sales, and every sub paid with the certificate dates, the limits and the work it did. A sub with no certificate, or one that expired before the work ended, is found while it can still be fixed. See the pages on certificates of insurance and on lower-tier subcontractor certificates.
SPM reads the insurance clause for the limits, the additional insured forms and the completed operations period before the bid goes out. The premium and any added cost are priced into the work. Allocation is on the insurance cost and overhead page.
FLAT MONTHLY FEE. NO SURPRISES.
Three tiers, priced by your trailing twelve month revenue. Which one you're in depends on how much of the work you want off your desk. No hourly billing. No payroll. The one-time onboarding fee is right here in the table.
| Last 12 months revenue | Monthly fee | One-time onboarding |
|---|---|---|
| Up to $1M | $1,900 to $2,900 | $1,000 |
| $1M to $3.5M | $2,600 to $3,900 | $1,500 |
| $3.5M to $6.5M | $3,800 to $5,700 | $3,000 |
| $6.5M to $9.5M | $5,100 to $7,100 | $4,500 |
| $9.5M to $12.5M | $6,100 to $8,500 | $6,000 |
| $12.5M to $15.5M | $7,400 to $11,000 | $7,500 |
| $15.5M to $18.5M | $9,400 to $13,500 | $9,000 |
| $18.5M+ | Quoted individually | Quoted individually |
The onboarding fee covers migrating your books back to the start of your last taxable year and getting you fully operational in 60 days. It's billed once, with your first invoice. It's the same for all three tiers. Your first month is prorated, and your monthly engagement starts on the first of the first full month.
Range reflects the three tiers below. Which one you're in depends on how much of the work you want off your desk. No payroll. No hidden line items. The onboarding fee is right here in the table.
You stop guessing.
You get the CFO work. Job costing built against the way you estimate, a 13 week cash forecast, monthly WIP, and a meeting every month that ends in decisions and never in a report.
Your bookkeeper still does the books.
You stop touching the books.
Everything in Core, and we do the bookkeeping and the controllership as well. Your office stops answering coding questions and stops fixing a reconciliation that will not balance on the last day of the month.
We do the books. No payroll.
Every job shows its margin while it is still open.
Everything in Executive, plus the job costing and WIP platform set up, loaded with your cost codes, and managed for you every month. You never have to learn it.
We do the books, the job costing, and the software. No payroll.
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