By Jeffrey Coleman, The Coleman Law Firm
All contractors are required to have (and should have) a “Commercial General Liability Insurance Policy” otherwise known as a “GL Policy.” This policy generally covers the liability of contractors for accidents and resulting damage to persons or property. A comprehensive analysis of this policy is far beyond the scope of this article. In fact, a separate article could be written about almost each sentence of the GL Policy. There are, however, certain basic issues that you should be aware of. The following are 5 such issues.
The “Your Work Exclusion.” All GL policies exclude coverage for improper performance of your own work. Thus, the GL policy will not cover improperly performed work. The reason is obvious, improperly performed work is considered a business risk and no carrier wants to pay for a contractor to correct their own work. There are however exclusions to this exclusion. And yes, this does get confusing, and it would be simpler if the policy would just tell us what is covered. The first exclusion to the exclusion “may be” that the defective work of subcontractors is covered. I say “may be” because some policies do cover this risk and some do not. If it is covered then the policy will cover costs to correct defective work of your subcontractor. The second exclusion to the exclusion is for “damage to property other than the work itself.” One example would be that the policy would not cover defects in precast concrete wall panels. However, if the defective panels caused water intrusion and damage to insulation and mold growth, most policies will cover the damage to “other property.” Since the panels must be removed to repair the damage, the panel repair and replacement ends up paid for and thus covered as well. I have more recently seen policies that define “your work” to include the work of subcontractors, effectively nullifying both of these exclusions, so you need to check what your policy says.
The GL Policy provides no Professional Liability coverage. If you provide design work or if you do design-build work, you need to have a separate policy covering the engineer’s (or architect’s) professional liability. This coverage is specifically excluded from the GL policy and you do not have it unless you purchase a separate policy. If the engineering work is being done by an independent engineer, then you need to make sure they have the coverage and indemnify you for design errors.
The “Additional Insured.” Many times, you may be asked to name your client as an additional insured or you may (should) require that subcontractors working for you name you as an additional insured on their GL policy. If you are a named insured, you can make a direct claim against the policy as if you were the original insured party. This is a powerful way to gain coverage. It also is a bad way for others to make claims against your policy and thus impact your loss history which you will pay for in the long run. There are two ways to be a named insured on a GL policy. The first and least common is to be added to the list of insured parties in the declarations section of the policy. The more common way is through the “Blanket Additional Insured Endorsement.” This is an endorsement to your policy that essentially provides that anyone that you are required to name as an additional insured in your contract is automatically named as an additional insured. There are however exclusions. For example, architects and engineers are excluded at least for professional liability.
You must keep your policies forever. GL policies are “occurrence based” as opposed to Professional liability policies that are “claims made” policies. An occurrence-based policy covers the damages in the year that the damaging act occurred. If exposure to the damage spreads over multiple years, then multiple policies may have coverage. In contrast, claims-made policies respond to claims made in the policy year regardless of when the error or omission occurred. I have had two clients who were sued for installation of asbestos containing products back in the 60s. In many states there are no statutes of limitation for asbestos claims. If you cannot find your GL policies from the 60s you will have no coverage. More recent policies exclude asbestos coverage but the policies prior to the mid-70s often did not exclude that coverage.
Hire a good insurance broker. This is only a short list of the most important considerations and these can vary from policy year to policy year and between carriers. You need to enlist a good broker to review your policies and compare coverage between carriers so that you have the best possible coverage for your business.
About the Author: Jeffrey Coleman, PE, FACI is an attorney as well as a licensed engineer with degrees in civil and structural engineering. He is currently serving as president of the American Concrete Institute in the 2020/2021 cycle. For more information on construction contracts, contact Jeffrey Coleman at The Coleman Law Firm, (612) 877-8200 or firstname.lastname@example.org.