Whether you are a general contractor, subcontractor, or project owner, an effective risk management approach should be a priority for every project. But how do you mitigate construction risk? Oftentimes, the purchase of a commercial general liability insurance (CGL) policy is the beginning and end of the risk management process. However, without a thorough review of the policy language, you may find yourself facing unanticipated exclusions from coverage.
This article will address some of those issues and outline how a strong understanding of your policy can ensure you purchase the right product. Please note this article is for informational purposes only and should not be considered legal advice. If you require legal help, contact one of the qualified attorneys at our office for assistance.
Commercial General Liability Policies
Most CGL insurance policies use boilerplate language promulgated by the Insurance Services Office (ISO), an insurance industry trade association, and provide occurrence-based coverage. A typical general liability policy will extend coverage to the insured for sums the insured is legally obligated to pay. Covered damages often include bodily injury or property damage (physical injury to tangible property or loss of use). Under an occurrence-based commercial general liability policy, this damage must be caused by “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Additionally, the occurrence must take place within the coverage territory (on-site) and during the policy period.
Once you understand what is covered by your CGL policy, the next step is to carefully examine the named exclusions. The primary purpose of a CGL policy is to protect the insured from third-party liability claims, thus there is often no coverage for the insured’s own loss or injury. However, there may be coverage for defective work performed by a subcontractor hired by the insured.
What is excluded from a commercial general liability policy? If your CGL insurance policy is deficient in coverage, it is important to request the appropriate endorsements from your insurance broker. For example, a completed operations endorsement covers loss occurring after the project is complete, which is not covered under your standard CGL policy. Further, every subcontractor down the food chain should obtain sufficient coverage as well—and name the owner and general contractor as additional insureds.
Because there are usually several CGL policies triggered after an onsite occurrence, the implicated insurance carriers often attempt to point the finger at each other and claim it is only obligated to contribute once the primary coverage has been exhausted. Thus, it is important to require all policies down the chain to be primary and non-contributory. Confirming adequate coverage requires reviewing the actual policy—including all endorsements—obtained by lower-tier subcontractors. Unfortunately, reviewing the certificate of insurance is not sufficient to prove coverage.
Disclaimer of Coverage
Once you have received a third-party claim or have been sued for a potentially covered occurrence, it is important to tender the claim to your insurance carrier immediately. Although this sounds like a straightforward process, it can often be difficult to determine who the claims administrator for your insurance carrier is.
Your insurance broker should provide you with this information upfront or have it on file when needed. It typically takes the insurance carrier several weeks to investigate the claim and obtain all the information necessary to make a claim determination. This process includes reviewing the lawsuit or claim, requesting information regarding all of the parties involved, where the occurrence took place, and the potential cause of the occurrence.
Once the investigation is complete, the insurance carrier will inform you of its coverage determination. If you are issued a denial letter—often referred to as a disclaimer of coverage—that may not be the end of the inquiry. Upon denial, you should contact an experienced attorney immediately to provide a second opinion and challenge the determination, if necessary.
Best practices necessitate consultation with an insurance broker that has extensive experience within the construction industry to ensure you purchase the right product and secure the needed endorsements. Further, engaging the services of an experienced attorney to review your policy and demand coverage when necessary could prevent you from losing valuable coverage.