Your LLC protects your personal assets from business debts. It doesn't pay for your mistakes. Insurance does.
The two policies tradespeople ask about most are general liability and errors and omissions (E&O), also called professional liability. They sound similar. They cover very different problems.
Key takeaways
- General liability (GL) covers claims that your business operations caused bodily injury or property damage to someone else.
- E&O / professional liability covers claims that your advice, design, specs, or professional service caused a financial loss.
- GL usually does not pay to redo your own faulty work. Read the exclusions.
- Many contractors need GL. You may also need E&O if you design, specify, consult, inspect, or program systems.
- Workers' comp, commercial auto, and tools coverage fill other gaps. In Colorado, workers' comp is required once you have employees.
General liability: the foundation policy
The SBA describes general liability as protection against financial loss from bodily injury, property damage, and the cost of defending a lawsuit.
For a trade business, that looks like:
- You knock a ladder into a client's window.
- A customer trips over your extension cord and gets hurt.
- Water from your work damages a neighbor's ceiling.
- A claim comes in months after you finish, alleging your completed work caused damage (often called completed operations coverage).
Most GCs, property managers, and commercial clients will ask for proof of GL before you start. They'll want a certificate of insurance (COI) and may ask to be named as an additional insured.
What GL usually doesn't cover
Policies vary, so read yours. Common gaps:
- The cost of fixing your own work. If your install was faulty, GL may cover damage it caused to other property, but often not the cost of redoing the work itself.
- Professional mistakes that cause financial loss without physical damage.
- Injuries to your employees. That's workers' comp.
- Your vehicles. That's commercial auto.
- Your own tools and equipment. That's usually an inland marine or tools policy.
E&O (professional liability): coverage for your judgment
The SBA describes professional liability as coverage for claims of errors, negligence, and malpractice in the services you provide.
E&O matters when your advice or design is part of what you sell, and a mistake can cost the client money even if nothing is physically broken. Examples:
- An HVAC contractor sizes a system wrong, and the client has to replace it.
- A solar or electrical designer gets load calculations wrong, and the project has to be redesigned.
- A low-voltage or smart-home installer misconfigures a system, and the client loses business.
- A remodeler gives design advice that doesn't meet code, delaying the project and adding costs.
- An inspector misses a defect a client relied on when buying a property.
If you only do hands-on installation to someone else's spec, E&O may matter less. If you consult, design, specify, program, or inspect, ask about it.
Side-by-side
| General liability | E&O / professional liability | |
|---|---|---|
| Covers | Bodily injury and property damage to others | Financial loss from errors in your professional service |
| Typical trigger | Something physical goes wrong | Your advice, design, or spec was wrong |
| Who asks for it | GCs, property managers, commercial clients | Design-build clients, commercial clients, contracts with design responsibility |
| Common exclusion | Professional errors, redoing your own work | Bodily injury and property damage |
Some insurers offer combined contractor's policies or endorsements that blend the two. Coverage depends entirely on the wording, so compare actual policy language, not just the name.
Other coverage trade businesses should know
Workers' compensation
In Colorado, employers generally must carry workers' comp once they have even one employee, full- or part-time. Sole proprietors and LLC members may be able to exclude themselves, but then an on-the-job injury to you isn't covered. Check the CDLE Division of Workers' Compensation for current rules.
Commercial auto
Personal auto policies may exclude or limit business use. If your truck is how you get to jobs and haul gear, ask your agent whether you need commercial auto.
Tools and equipment (inland marine)
Covers tools and equipment on job sites, in transit, or stolen from your truck.
Business owner's policy (BOP)
A package that often bundles GL with property coverage. It can cost less than buying policies separately.
Umbrella / excess liability
Extra limits on top of GL and auto. Useful when contracts require higher limits.
Licenses and bonds
Some cities and counties require a license bond or other bond to pull permits. A bond protects the customer or the city, not you.
How to buy smart
- Read the contracts you sign. Many list required coverage types and limits. Match them.
- Describe your work accurately. If you do any design or consulting, say so. Misdescribing your operations can lead to denied claims.
- Ask about exclusions. Especially for your own work, mold, water damage, and subcontractors.
- Require COIs from your subs. If an uninsured sub causes damage, it can land on your policy.
- Review every year as your work changes.
FAQ
Do I need insurance if I have an LLC?
Yes. An LLC can protect personal assets from business debts, but it doesn't protect you from your own negligence, and it doesn't pay claims. Insurance does. See why tradespeople need an LLC.
Is general liability required by law in Colorado?
Colorado doesn't have a statewide GL requirement for all trades, but many cities, counties, and most commercial clients require proof of coverage. Check with the local building department where you work.
What's a certificate of insurance?
A one-page summary from your insurer showing your coverage and limits. Clients ask for it before you start work.
Does E&O cover faulty workmanship?
Usually not the cost of redoing physical work. E&O is focused on professional services like design, advice, and specs. Ask your agent how your policy handles it.
Get the right coverage in place
Fresh Start Consulting offers business liability, E&O, and other commercial coverage through trusted partners, and life insurance directly through Evan. See our Insurance Programs or book a free 30-minute call.
This article is for educational purposes only and is not insurance or legal advice. Coverage depends on the specific policy wording, insurer, and state. Talk to a licensed insurance professional about your business before buying or changing coverage.
Talk it through with Evan
Book a free 30-minute call. No pitch, no pressure. Or see how we help with Insurance Programs.
Evan Lightner is a licensed life insurance agent in Colorado only. Other insurance products are referred to independent licensed professionals. Disclosures
Evan Lightner is the founder of Fresh Start Consulting. He started as a 12-volt and telematics technician and built his first company from the ground up. More about Evan.
