If you were a contractor before the 1930s, you had a tough time dealing with insurance. You would need to buy a separate policy for each type of risk, and one for each place of business. However, since 1939, insurance companies in the U.S. have begun writing policies for blanket coverage called commercial general liability insurance. These policies cover every risk except those listed in the exclusions.
Why Construction Contractors Need Commercial General Liability Insurance
Today, contractors buy general construction liability insurance because it helps to protect them from financial ruin. Construction, like most businesses, is risky, and each risk threatens financial loss. When you add up all the risks posed by construction, it’s clear incurring a loss is just a question of time.
Provides Financial Coverage for Risks
CGL insurance offers to cover your losses from the most common risks your business faces. These include risks to people and to property.
Cover Non-employee Injuries
There are multiple ways people can get injured on a job site. If your workers or your subs’ workers get injured, the healthcare policies and workers’ compensation policies cover them. But, what about delivery driver injuries or visitor injuries? This is where your CGL policy kicks in to pick up medical costs for the injured parties as well as other costs arising from the incident.
CGL Insurance Covers Accidents Resulting in Property Damage
If your backhoe bangs into the corner of a building knocking out 300 bricks, you’ll likely be liable for the damages. If your framing crew fails to brace a wall, and it falls damaging a nearby property, you will probably be liable for damages. Just think about all the accidents that can happen on a construction job site—it quickly becomes clear you need insurance that covers all the risks.
CGL Insurance May Cover Installed Products
Your sub installed gutters on a home. A year later the gutter crashes down on the homeowner’s head because of defective fasteners. It’s technically not your fault, but your sub did the work and you guaranteed it. The homeowner will come after you for damages; you might even face civil penalties. Your CGL policy might cover these losses.
Receive Coverage Beyond the Jobsite
Your CGL policy can also cover incidents at your place of business by paying for damages and medical care.
Fulfill Contract Requirements and Bidding Qualification
Whether you are a general contractor or a subcontractor, you have requirements passed down to you by the people you work for. Owners require GCs to have insurance, and the GCs pass that requirement down to their subs. General liability insurance is a major part of required contractor insurance.
Main CGL Risks NOT Covered
In most cases, your general liability won’t cover your vehicles or your employees. You must cover your vehicles with a commercial vehicle insurance policy. Your employees’ injuries, on the other hand, are covered with workers’ compensation administered through your state workers’ compensation bureau. CGL also doesn’t cover damages to equipment like loaders and backhoes.
Your general liability insurance doesn’t cover professional liability, either. So, if you design an aspect of a project that fails, you’ll be liable. Contractors are increasingly finding themselves doing design work. If you are in that group, do consider getting a professional liability policy. Sometimes, you can have a rider added to your CGL policy to cover this. But, pay attention to the language, and have it reviewed by legal counsel specializing in insurance and construction.
It’s also not likely your CGL policy will cover cleanup and remediation of pollution.
Getting Commercial General Liability Insurance
Getting CGL coverage is just like getting any other insurance. Be prepared to supply a wide range of information about your business to the insurer. This goes beyond just the name and location to include partners, business operations, revenue estimates, employees, and insurance history. But first, make sure you know why you’re buying insurance.
Risk Assessment
Since most CGL policies have standard inclusions and exclusions, it’s always wise to consider your unique risks. You might have risks that don’t fit within the included coverages of a policy using the standard Insurance Services Office form. Brokers and agents use these forms to save time, but they are very general and might not cover all your risks.
Insurer Choices
If you already have an insurance agent for other policies with experience in business insurance, then they are a likely choice. Otherwise, you have a few options.
You can go with an independent agent who sells policies from several companies. Alternatively, you could choose a captive agent who works with only one company. You could also work with an insurance broker who will work on your behalf to find the best policy for your needs at the best price.
There is a major difference between an independent agent and a broker. The broker is your representative while the independent agent represents the insurance companies whose products they sell.
Shopping Cautions
The insurance industry is highly regulated, and there is ample case law supporting insurance claims outcomes. However, you can run into unscrupulous people selling insurance, so always check out the credentials of companies and agents.
Stick to your risk assessment, and carefully evaluate policies that agents offer to you. First and foremost, you need to cover your risks. Then, find the right price.
Other Considerations
Limits
The policy limits decide how much the policy will pay out in the event of a loss. When the insurance company pays out the maximum, you’re on the hook for anything over that amount.
Riders/Endorsement
Regardless of the risk, you can usually get it covered by using a rider or endorsement to the CGL policy. Environmental risks and professional liability risks are two common ones. However, you can also get damage to existing structures, property damages after completion, and others.
Broad Coverage Policies
There is a wide range of choices when shopping for business insurance, and one of the more popular ones for contractors is the business owner’s policy. Besides CGL, these policies might include business property insurance and business income insurance.
The umbrella policy increases the coverage limits on your CGL, commercial auto liability policy, and employer’s liability insurance. It kicks in if a large loss exceeds the coverage of your primary policies.
Claims Made or Occurrence
The dominant ISO form used for CGL policies today is the one using an “occurrence” to trigger the coverage. It relies on one date—the date of the occurrence—to determine coverage. The “claims made” form, on the other hand, relies on three dates related to the incident to determine when, or even if, the policy pays.
Legal Issues
It’s in the contractor’s interest to file claims to recover losses, and it’s in the insurance company’s interest to administer the policy to limit payouts. You will find exclusions in your CGL, for instance, no coverage for defective work, joint venture exclusion, or exclusion for recalled products. Pay close attention to exclusions to ensure you’re covering your risks adequately.
Closure
CGL policies continue to evolve as the courts decide insurance cases. Don’t make the mistake of not working with your legal counsel as you shop for insurance policies, and administer your project contracts.
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