General Liability vs. Workers' Compensation for Plumbers

The short version

The simplest way to keep the two policies apart is to ask one question about any injury or damage: whose body, and whose property? If the injured person is on your payroll, the claim belongs to workers' compensation. If the injured person or the damaged property belongs to anyone else, the claim belongs to general liability.

The two policies are built on different principles. Workers' compensation is a no-fault benefit system created by statute: an employee hurt at work receives medical care and wage replacement without having to prove the employer did anything wrong, and in exchange generally gives up the right to sue the employer. General liability is fault-based: it pays when your company is legally responsible for injuring someone or damaging their property, and it pays for the lawyers who argue about whether you are responsible.

Because each policy is written to exclude the other's territory, owning one does not shrink the need for the other. The space between them is narrower than it looks, and it is covered by two pieces that are easy to overlook: the employers' liability section of the workers' compensation policy, and the general liability policy's coverage for liability you take on in a contract.

A realistic scenario

A repipe contractor in San Diego County sends a four-person crew to replace the supply lines in an occupied two-story house in Escondido. The homeowner's mother, who lives in the back bedroom, stays home during the work.

Mid-morning, a journeyman cutting out a section of copper in the ceiling of the hallway slips on the ladder and drives a reciprocating saw blade into his forearm. Tendon damage, surgery, four months before he can run a saw again. After lunch, the homeowner's mother walks down the hall to the bathroom, catches her foot on the drop cloth bunched at the doorway, and falls. Broken hip, hospitalization, a rehab facility.

Two injuries, same house, same day, same drop cloth. The journeyman's claim is a workers' compensation claim. His surgery, therapy and temporary disability payments are paid under Part One of the company's policy regardless of whether he set the ladder badly. The mother's claim is a general liability claim. Her attorney will argue the company created a tripping hazard in an occupied home; the general liability carrier will defend the company and, if the company is found responsible, pay the judgment or settlement, subject to the policy's terms and limits.

Then a third claim appears. The journeyman's attorney discovers that the homeowner had hired a handyman the week before who left debris in the attic access, and sues the homeowner. The homeowner's insurer points to the indemnity clause in the plumbing contract and demands that the plumbing company take over the defense and pay any judgment. That is not a workers' compensation benefit. Because the demand rests on a contract the company signed, it is the kind of claim a standard general liability form generally addresses through its coverage for an "insured contract", subject to the policy's terms and any endorsement that narrows it; a demand that did not rest on a contract would point to employers' liability, Part Two of the workers' compensation policy, although in California a third party generally cannot recover from the employer without a written indemnity agreement signed before the injury.

Three claims, and in this scenario each one had a policy that answered it. That only happens when the two policies are bought to fit together.

What workers' compensation covers

Who it protects

Workers' compensation protects your employees. California Labor Code section 3700 requires every employer with one or more employees to carry it, and the Department of Industrial Relations describes the rule plainly: if a business employs one or more employees, it must satisfy the requirement of the law. For a licensed contractor, CSLB enforces it at the license level; an exemption on file becomes invalid the moment you hire, and CSLB must have proof of coverage within 90 days of the hire. The rules, benefits and premium mechanics are covered in Workers' compensation insurance for California plumbing companies.

What triggers it

An injury or illness arising out of and in the course of employment. Fault is irrelevant. The plumber who ignored the ladder rule and the plumber who did everything right receive the same benefits. The trade-off is that the employee generally cannot sue the employer in civil court for a covered injury; the Department of Insurance describes workers' compensation as the exclusive remedy for injured employees. That protection depends on being properly insured: DIR warns that an employee of an uninsured employer can file a civil action in addition to a workers' compensation claim.

The two parts

Part One pays the statutory benefits: medical care, temporary disability, permanent disability, the supplemental job displacement benefit and death benefits, each paid under the rules the law sets. (The Division of Workers' Compensation's time-of-hire notice also lists the Return-to-Work Supplement Program, but that payment comes from a state fund the Department of Industrial Relations administers, not from your policy.)

Part Two, employers' liability, is liability insurance for the employer. The Department of Insurance describes it as protecting the employer when an employee's injury or disease is not subject to the workers' compensation laws. In practice it generally responds to lawsuits arising from a work injury that fall outside the benefit system, subject to its own exclusions, which typically include liability you assumed under a contract. It carries its own limits, shown on the policy's declarations; compare them with the figures your subcontracts require.

What general liability covers

Who it protects

General liability protects your company against claims from everyone who is not your employee: customers, tenants, building owners, neighbors, the general contractor's people, delivery drivers, passersby. California requires it only of LLC licensees, who must carry a cumulative limit of at least $1,000,000 (rising with personnel of record to a cap of $5,000,000). For sole proprietors, partnerships and corporations the state is silent and the market speaks: a certificate showing general liability is the price of admission to almost every commercial job, property management account and general contractor's approved vendor list.

What triggers it

A standard commercial general liability form generally pays, on your behalf, the sums you become legally obligated to pay as damages because of bodily injury or property damage caused by an occurrence during the policy period, subject to the policy's terms, exclusions and endorsements. Two phrases matter for plumbers. Occurrence means an accident, including continuous or repeated exposure to the same harmful conditions, so a slow leak that damages a subfloor over weeks can still qualify as an occurrence. Completed operations extends coverage to injury or damage that happens after your work is finished and you have left the job, which is when much plumbing property damage shows up. Completed operations coverage for plumbing contractors covers that part in depth.

What it will not do

A standard general liability form does not cover injuries to your own employees arising out of their work, and it does not cover any obligation you have under a workers' compensation law. Those two exclusions are what keep the policies from overlapping. It also generally does not cover the cost of repairing or replacing your own defective work, damage to property you are working on in some circumstances, or damage to your own tools and vehicles. Plumbing contractor insurance exclusions you should understand goes through those in detail.

Side by side

Where the two meet

The employee-of-a-subcontractor problem

The lines blur when the injured person works for a subcontractor. If the sub is licensed and insured, its injured worker's benefits come from the sub's workers' compensation, and if that worker sues you, the claim is a third-party claim under your general liability, subject to its terms, exclusions and endorsements. If the sub is unlicensed, California law can treat its workers as your employees for workers' compensation purposes, and your own policy, and your own X-Mod, absorb the claim. Even for a licensed sub, if no certificate of insurance is on file at audit your workers' compensation carrier typically charges you premium for the sub's labor. Are plumbing subcontractors covered by your insurance? addresses this in full.

The action over

The Escondido scenario's third claim is the classic gap. Your employee generally cannot sue you, but can sue the property owner or general contractor, who then looks to you under the indemnity clause you signed. Workers' compensation Part One does not pay it because it is not a benefit. Which liability coverage responds depends on what the demand rests on. A standard general liability form excludes injury to your own employees, but that exclusion generally does not apply to liability you assumed under an "insured contract", such as a typical indemnity clause, so a contractual demand is usually a general liability claim, subject to the policy's terms and any endorsement that limits contractual liability or excludes action-over claims. Employers' liability, Part Two, generally excludes contractual liability and is the coverage that would defend an action over that does not rest on a contract. In California such claims are narrow: Labor Code section 3864 generally bars a third party from recovering from the employer unless the employer agreed in writing, before the injury, to indemnify it, which is one more reason the written indemnity clause and the general liability policy behind it carry most of this exposure. That is why general contractors write both a general liability requirement and an employers' liability limit into their subcontracts, and why the general liability endorsements matter as much as the limits.

Contract requirements pull on both

The same subcontract that requires employers' liability also requires general liability with additional insured status, primary and non-contributory wording and a waiver of subrogation, and it usually requires a waiver of subrogation on the workers' compensation policy as well. Certificates of insurance and additional insured requirements for plumbers explains what each of those terms asks of each policy.

Practical takeaway

Buy both, and buy them in the right order. Workers' compensation goes into force the day the first employee starts, because the law and CSLB require it and the penalties for a gap are severe. General liability goes into force the day you have a customer, because water damage to someone else's building is one of the most common plumbing claims and, among these two policies, only general liability pays for it.

Then make sure the two fit together. Confirm the employers' liability limits on the workers' compensation policy meet the highest figure in any subcontract you sign, or that an umbrella sits above them. Confirm the general liability policy includes completed operations and the endorsements your contracts require, and that no endorsement has cut back its coverage for liability assumed under contract. Collect certificates and license numbers from every subcontractor before they start, so their injured workers are handled by their policies and not yours.

For the San Diego repipe contractor, the day in Escondido produced a workers' compensation claim that, if the company is experience rated, will sit in its X-Mod for three ratings, a general liability claim that will be weighed at renewal, and an indemnity demand that the general liability policy's contractual coverage handled in the background. That is what a complete program looks like under pressure: each claim has a home.

If you want a producer to check whether your two policies actually meet in the middle, start a quote or send your current certificates through the contact page and ask for a coverage comparison.