Toronto Construction Business Insurance Surety Bonds

Does Your Toronto Construction Business Need a Surety Bond?

June 26, 2025 / 5 mins read

Do you need a surety bond to guarantee that work that you’ve been contracted to do will be completed? It’s important for you to understand what type of surety bond is required for your Toronto construction business and in what amount.

Surety bonds are common in the construction industry, but they can also be required in the transportation and logistics, service, and manufacturing sectors. A surety bond must be uniquely tailored to meet the needs of a specific project for your Toronto construction business and the project it will be involved in.

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What is a surety bond?

Here are the three parties involved in a surety bond: the principal, the obligee, and the surety.

The principal (contractor/construction company) buys the surety bond to guarantee quality and completion of contracted work that will be done.

The obligee is the party that requires your Toronto construction company to buy the bond, such as a government, company, or institution.

The surety is usually a licensed insurance company (or a specialized surety bond provider) and it issues the bond and financially guarantees the principal’s ability (your Toronto company’s ability) to complete the contracted work.

What happens to the surety bond if the contractor does not finish the job?

A surety bond will pay your customer if your Toronto construction business does not complete a job or obligated task. If work is not completed per agreement, your client can claim the bond and receive compensation for their loss up to the bond’s limit. Once claimed, the paid-out losses are still recoverable from your Toronto construction company.

When do Toronto construction businesses need surety bonds?

Surety bonds are commonly needed when your Toronto construction company is bidding on government, municipal, or large commercial projects. They provide financial assurance to project owners that you, as the contractor, will fulfill the contract terms.

Common types of surety bonds include:

  • Bid bond: It’s a type of surety bond commonly used in the construction industry during the bidding process for a project. It is a financial guarantee provided by a contractor (the principal) to the project owner (the obligee) that ensures the contractor will enter into the contract at the bid price if awarded the job and will provide any required performance and payment bonds before work begins.
  • Performance bond: A performance bond is a type of surety bond that guarantees that a contractor will fulfill all obligations specified in a contract. Performance bonds are typically required before work begins, especially on large-scale or public projects.
  • Labour and material payment bond: A labour and material payment bond is a type of surety bond used in construction projects to guarantee that the contractor will pay all subcontractors, suppliers, and laborers for work performed and materials supplied on the project.

Surety bonding demonstrates credibility and financial reliability in a competitive market for your Toronto construction company.

How is a surety bond different from insurance?

A surety bond guarantees performance or compliance with contractual or legal obligations. Insurance provides financial protection against unforeseen events or losses, such as fire, vandalism, or severe weather.

Are there financial consequences if a Toronto contractor with a surety bond doesn’t finish the job?

Yes. If a contractor does not finish the job and the surety pays out on the bond to complete the construction project or compensate the project owner, the Toronto contractor is required to reimburse the surety for those costs.

How much do surety bonds cost for Toronto contractors?

The cost of a surety bond depends on the bond type, length of time for coverage, risk, the principal’s credit score and claims history, and annual revenues. That means there is not a set price for a surety bond for Toronto contractors.

What do I do if my Toronto contractor business has an insurance claim?

  • Contact your broker immediately after any business-related mishap. Waiting to file a claim can confuse insurers about the severity of the damages to your business.
  • Know your policy so that when you contact your broker you are familiar with what will be covered or not.
  • Document the damage. Take photos right away and write down what happened.
  • Do not throw away damaged goods after taking photos. Keep the physical evidence so that your adjustor can see it.
  • Do not invite lawsuits. Don’t say anything that could be used against you, especially if you aren’t sure what happened.
  • Be honest about what your damaged property is worth. Damaged commercial property is generally valued according to its actual cash value or replacement value.

Western Insurance has licensed BUSINESS INSURANCE EXPERTS to get your Toronto construction business the right insurance package. Our experts are available now to help you navigate the business insurance journey to protect your business.

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5 FAQs about construction insurance

Is construction insurance customizable?

All construction businesses are different. Construction insurance can be tailored based on services performed and in what trade, number of employees, project size, and equipment needs. Clients can adjust coverage limits, add optional protections (like pollution liability or cyber coverage), and select deductible amounts that work best for their construction business.

What are the important liability coverages that construction businesses need?

Liability coverages are needed for financial protection, legal compliance, and peace of mind. Key liability coverages include: Commercial General Liability (CGL): Covers injury or damage to third parties; Completed Operations: Protects against claims after a project is finished; Employer’s Liability: Fills the gap not covered by workers’ compensation; Pollution Liability: Important for contractors dealing with hazardous materials; Non-Owned Auto Liability: Covers liability when employees use personal vehicles for work; and Errors & Omissions (Professional Liability): Essential for design-build or consulting contractors.

How much commercial general liability (CGL) insurance is recommended?

Most contractors are advised to carry at least $2 million in commercial general liability coverage. For larger operations or those working on government or commercial projects, $5 million may be required.

How does construction insurance protect contractors and independent trade workers?

Construction insurance protect contractors and independent tradespeople from the daily risks they face on job sites. It provides financial protection against third-party injuries, property damage, equipment theft, and even lawsuits that may arise from completed work.

Do contractors need builder’s risk (course of construction) coverage?

Yes, they do. Builder’s Risk is also called Course of Construction insurance and it’s essential for protecting projects while they are being built or renovated. This type of insurance covers fire, vandalism, theft of materials, storm or weather-related damage, and collapse or accidental structural damage. Builder’s risk insurance also protects tools and materials on-site. It’s often a requirement for contractors from lenders or project owners.