What contractors don’t know about their equipment coverage could cost them everything.
The Assumption That Leads to Gaps
Walk any jobsite and ask a contractor whether their equipment is covered — most will say yes without hesitation. What they often mean is that they have insurance. What they don’t realize is that the policy they’re thinking of almost certainly wasn’t designed to cover the tools and equipment sitting in their truck, staged on their site, or rented to a neighboring subcontractor.
This misunderstanding is one of the most common — and most costly — coverage gaps in the contractor insurance market. Getting it right starts with understanding what each type of policy actually does. At Haughn Insurance, we can help you obtain proper coverage for your business as well as your equipment.
What a CGL Policy Actually Covers
A Commercial General Liability (CGL) policy is built around one core purpose: protecting a contractor from claims made by third parties for bodily injury or property damage caused by their operations. It responds when someone else gets hurt or when someone else’s property is damaged.
The critical phrase there is someone else’s. A CGL policy is not designed to cover a contractor’s own property. If a $40,000 excavator is stolen from a jobsite, or a skid steer is damaged in an accident, the CGL policy will not respond — because no third party was injured and no third-party property was damaged. The loss belongs entirely to the contractor.
This distinction is fundamental, yet consistently misunderstood. CGL policies also do not cover tools and equipment simply because they are on a covered jobsite. The coverage trigger requires a liability event, not a property loss.
Tools & Equipment Coverage
Tools and Equipment coverage — sometimes called a contractor’s equipment floater at a basic level — is a first-party property coverage designed to protect a contractor’s owned or leased hand tools, power tools, and smaller equipment against physical loss or damage.
Typical covered causes of loss include theft, vandalism, fire, and accidental damage, depending on whether the policy is written on a named-perils or open-perils basis. Open-perils forms are generally preferable, as they cover any cause of loss not specifically excluded rather than requiring the loss to match a listed peril.
Key characteristics of a tools and equipment policy include:
- Scheduled vs. blanket coverage — Smaller tools are often covered on a blanket basis up to a set limit, while higher-value items may need to be individually scheduled.
- Per-item and aggregate limits — Policies impose limits per tool or piece of equipment, and a total limit per loss event. Contractors with significant tool inventories frequently underinsure at both levels.
- Deductibles — Often applied per item or per occurrence, and can vary by cause of loss.
- Location restrictions — Some policies limit coverage to tools while on the named insured’s premises or a scheduled jobsite. Tools left in an unlocked vehicle overnight may be excluded.
Inland Marine
Inland Marine insurance — despite its nautical-sounding name — has nothing to do with water. The name is a historical artifact from the days when marine insurers began extending coverage to goods transported over land. Today, it is the standard mechanism for insuring property that moves, is in transit, or exists across multiple locations — exactly the profile of contractor equipment.
An Inland Marine policy, specifically a Contractor’s Equipment Floater, is the appropriate vehicle for covering medium to heavy equipment such as excavators, bulldozers, cranes, compressors, generators, forklifts, and concrete pumps. These items routinely move between jobsites, are stored offsite, and are far too valuable to leave to a basic tools policy.
Inland Marine differs from a basic tools and equipment policy in several important ways:
- No fixed-location requirement — Coverage follows the equipment wherever it goes, which is particularly important for contractors operating across multiple sites or regions.
- Higher scheduled values — Individual pieces of equipment are typically scheduled with agreed or stated values, reducing disputes at claim time.
- Broader covered causes of loss — Most contractor equipment floaters are written on an open-perils basis, providing broad protection against physical loss or damage unless specifically excluded.
- Rental reimbursement — Many floaters include or offer optional coverage for the cost to rent substitute equipment while a covered piece is being repaired or replaced.
- Leased and rented equipment — Floaters can be endorsed to cover equipment a contractor has rented or leased from others, filling a gap that surprises many contractors when a rented machine is damaged on their watch.
Common Coverage Gaps
Even contractors who carry both a CGL and an Inland Marine floater are not automatically well-covered. The following gaps appear regularly in contractor programs:
1. Undervalued Scheduled Equipment
Equipment purchased several years ago may be scheduled at its original purchase price rather than current replacement cost. With equipment values elevated significantly in recent years, this can create a serious coverage shortfall at claim time.
2. Employee-Owned Tools
If a tradesperson brings their own tools to the job and those tools are stolen or damaged, the contractor’s Inland Marine policy typically will not cover them. This exposure may fall back on the employee’s personal policy or go uninsured entirely.
3. Equipment in Transit
Not all policies cover equipment while it is being transported. A floater should explicitly confirm coverage applies while equipment is on a trailer or flatbed between sites.
4. Mysterious Disappearance
Some policies exclude loss where there is no physical evidence of theft. If a piece of equipment simply goes missing from a site with no signs of forced entry or witnesses, the claim may be denied.
5. Wear and Tear, Mechanical Breakdown
Property policies generally exclude gradual deterioration, mechanical failure, and wear and tear. Contractors who confuse insurance with maintenance coverage will find these claims declined. Separate equipment breakdown coverage may be needed for mechanical failure exposures.
6. Rented-Out Equipment
If a contractor lends or rents their equipment to another party and that party damages it, coverage may be excluded or disputed. This scenario requires careful review of policy language before any equipment changes hands.
Builder’s Risk Is Not the Answer Either
A common secondary misconception is that a Builder’s Risk policy covers contractor tools and equipment on a jobsite. Builder’s Risk is designed to cover the structure under construction — the project itself — not the contractor’s means and methods. Most Builder’s Risk policies explicitly exclude contractor tools, equipment, and machinery. In an OCIP or CCIP environment where Builder’s Risk is provided by the project owner, subcontractors are generally responsible for their own equipment coverage.
Building the Right Program
For most contractors, adequate equipment protection requires three layers working in coordination:
| Layer | Policy Type | What It Covers |
| Third-party liability | CGL | Injury and property damage claims from your operations |
| Smaller tools and hand equipment | Tools & Equipment | Owned hand tools, power tools, and small equipment |
| Larger mobile equipment | Inland Marine / Equipment Floater | Scheduled heavy equipment, rented equipment, and transit exposures |
The right limits at each layer depend on your trade, the volume of equipment you own or regularly rent, and the geographic spread of your operations. A roofing contractor’s program looks very different from that of a site work or heavy civil contractor.
The Takeaway for Contractors
Equipment losses happen constantly — theft, operator error, site accidents, and weather events all take a regular toll on contractor property. The cost of a single uninsured equipment loss can exceed an entire year’s premium for a properly structured program.
The solution is straightforward: work with a broker who understands contractor operations, conduct a full equipment inventory at every renewal, ensure scheduled values reflect current replacement costs, and never assume a CGL policy is doing a job it was never designed to do.
Your equipment is the engine of your business. Make sure it’s protected like it is.
About Haughn Insurance
Haughn Insurance is a full-service insurance agency headquartered in Dublin, Ohio, specializing in Business Insurance, Employee Benefits, and Personal Insurance. Built on core values of integrity, honesty, dependability, innovation, and collaboration, Haughn Insurance provides clients with high-quality insurance products and a personalized approach to risk management.
For contractors looking to review their equipment coverage program, our commercial lines team is ready to help.
