Construction Insurance & Bonding Glossary

Commercial General Liability (CGL)

Covers third-party bodily injury and property damage arising from your operations, products, or completed work. The single most-required policy in construction; certificates with $1M/$2M limits are the contract baseline.

Per-Project Aggregate

Endorsement that resets the policy aggregate limit separately for each project. Without it, one bad claim on Job A can eat the aggregate that should protect Jobs B, C, and D for the rest of the policy year.

Products-Completed Operations

The CGL coverage part that responds to claims arising after your work is complete. Critical for construction — most defect claims surface 1–10 years after substantial completion.

Workers' Compensation (WC)

Statutorily required in every state except Texas (where it's optional but functionally required by GCs). Pays medical and lost-wage benefits to employees injured on the job. Premium based on payroll × experience modifier × class code rate.

Experience Modification Rate (EMR / Mod)

Multiplier on your WC premium based on your loss history vs. industry average. 1.00 = average. Below 1.00 saves money; above 1.00 costs more — and most large GCs disqualify subs with EMR over 1.00 from prequalification.

Commercial Auto

Covers owned, hired, and non-owned vehicles used in the business. Symbol 1 (Any Auto) is the broadest. Most owner contracts require $1M combined single limit.

Inland Marine / Tools & Equipment

Covers tools, equipment, and materials in transit, in storage, or at the job site. Distinct from Property — designed for movable property. Schedule expensive equipment; blanket the rest.

Builders Risk / Course of Construction (COC)

Property insurance covering a project under construction against fire, theft, weather, and most physical damage. Written for the project duration. Coverage debate (GC's policy vs. Owner's policy) should be settled in the contract.

Professional Liability / E&O

Covers claims arising from errors in design or professional services. Required for design-build, EOR/CMR, and any contractor providing means-and-methods that go beyond pure construction.

Pollution Liability / Contractors Pollution Liability (CPL)

Covers third-party claims and clean-up costs from pollution conditions arising from your operations. CGL excludes pollution; you need CPL if you disturb soil, do demo, paint, roof, HVAC, plumbing, abatement, or fuel handling.

Umbrella / Excess Liability

Adds limits above your CGL, auto, and employer's liability. $5M–$25M typical on commercial work. 'Follow form' matches underlying coverage; 'standalone' has its own terms.

Subcontractor Default Insurance (SDI / SubGuard)

Alternative to requiring subcontractor performance bonds. The GC insures itself against sub default. Used by large GCs with significant volume and strong sub-qualification programs.

OCIP / CCIP

Owner-Controlled / Contractor-Controlled Insurance Program. A wrap-up policy where the owner (OCIP) or GC (CCIP) provides CGL, WC, and excess for all enrolled contractors on a project. Subs deduct their normal insurance cost from their bid.

Additional Insured (AI)

Endorsement that adds another party (typically the owner and/or GC) as an insured on your CGL. Required by virtually every prime contract. Forms vary — CG 20 10 (ongoing operations) + CG 20 37 (completed operations) is the modern combination.

Waiver of Subrogation

Contract clause and/or insurance endorsement preventing your insurer from suing the other party after paying a claim. Required by most prime contracts; usually paired with mutual waivers.

Certificate of Insurance (COI)

ACORD 25 form summarizing your coverage for a third party. It is evidence of insurance, NOT a contract — only the policy itself confers coverage. Always require actual endorsement copies for AI status.

Surety Bond

A three-party agreement: the surety guarantees the contractor (principal) will perform the obligation owed to the owner (obligee). Construction bonds are typically Bid, Performance, and Payment bonds.

Bid Bond

Guarantees that if awarded the contract, the bidder will enter the contract and provide required P&P bonds. Typically 5–10% of the bid amount. Forfeited if low bidder walks.

Performance Bond

Guarantees the contractor will complete the work per the contract. Surety pays the cost of completion (up to bond penal sum) if contractor defaults. Required on most public projects above a threshold.

Payment Bond

Guarantees the contractor will pay all subcontractors, suppliers, and labor. Federal Miller Act requires it on contracts >$150K; state Little Miller Acts mirror at the state level. Substitute for lien rights on public property (which can't be liened).

Miller Act

Federal law (40 U.S.C. §§ 3131–3134) requiring performance bond (100% of contract) and payment bond (100% of contract, capped at $2.5M) on every federal construction contract above $150,000.

Little Miller Act

State-level equivalents of the Miller Act, applying to state and local public-works projects. Coverage thresholds and bond percentages vary by state.

Subcontractor Bond / Sub Bond

Performance and payment bonds required by a GC of a sub, typically on subs above a dollar threshold ($250K–$1M+). Cost passed through in the sub's bid.

Maintenance / Warranty Bond

Guarantees the contractor will fix defects in materials/workmanship during the warranty period (typically 1–2 years). Often issued as an extension of the performance bond.

License & Permit Bond

Required by many state contractor license boards as a condition of licensure. Typically $5K–$25K. Protects the public from financial harm caused by the contractor's violation of licensing laws.

Surety Capacity / Bonding Line

The maximum aggregate work program a surety will support — typically 10× working capital and 20× tangible net worth, modulated by experience, character, and continuity. Single-project limit usually 10–15% of program.

Indemnity Agreement (GIA)

Personal guarantee signed by company owners and spouses pledging personal assets to reimburse the surety for any loss. Required on virtually every commercial bonding program.

SBA Surety Bond Guarantee Program

Federal program that guarantees 70–90% of a surety's loss on bonds up to $9M for SB contractors who can't qualify for standard markets. Two paths: Prior Approval and Preferred Surety.

1. Limits required vs. limits carried. If contract requires $5M umbrella and you carry $2M, either buy more or negotiate. Adding a project-specific excess for one job is usually cheaper than raising your annual umbrella.
2. Additional insured form. Look for ISO CG 20 10 (ongoing) + CG 20 37 (completed). "Additional insured per blanket endorsement" only works if your endorsement actually says so.
3. Primary & non-contributory. Means your policy pays first, the other party's policy doesn't contribute. Required by most owners. Endorsement needed.
4. Waiver of subrogation. Confirm your policy permits it (most do, free or low-cost endorsement) and that the contract waiver is mutual.
5. Notice of cancellation. "30-day notice" requirements on ACORD certificates are functionally unenforceable — insurers stopped honoring them. Push back on this clause if you can.
6. Indemnification clause. Often broader than what your insurance will defend. Pure tort indemnity is unenforceable in many states ("anti-indemnity statutes" in CA, NY, TX, IL, FL, etc.) — get legal review on first contracts with a new owner.

Sureties underwrite the "Three C's": Capital, Capacity, and Character. The numerical rules of thumb most standard markets use:

• Single-project limit ≈ 10× working capital, or 15% of total aggregate program.
• Aggregate program ≈ 10× working capital and 20× tangible net worth, whichever is lower.
• Working capital = current assets − current liabilities. Surety adjustments deduct related-party receivables, slow A/R (90+), and most stock value.
• Tangible net worth = total equity − intangibles (goodwill, capitalized software). Sureties also discount under-collateralized stockholder loans.

If you don't qualify for standard markets, the SBA Surety Bond Guarantee Program covers bonds up to $9M for small contractors. Premium is a hair higher, paperwork is heavier, but it's the bridge most contractors use until reviewed financials and 3 years of profitable history open the standard market.