Contractors General Liability Coverage Basics
With construction defect litigation on the rise, contractors are more often becoming targets for lawsuits. Learn about the coverage available in your contractor insurance. Please take a minute to review the basics of the contractors general liability policy.
Standard vs. Manuscript
The Insurance Services Office (ISO) provides standard policy forms for insurance professionals. This allows insurance professionals to know the what presenting to their clients with ease. Get a standard ISO policy form whenever possible simply so you can know what you are getting. While most insurance companies issue policies on ISO forms, many choose to write their own policies. We refer to any non-ISO policy as a manuscript policy. Manuscript policy forms make it easier for carriers to hide conditions and exclusions. They also make it most challenging for policyholders and insurance professionals to know exactly what is and isn't covered. Unless it's your only option, stay away from manuscript policies. Whenever possible, we recommend buying a policy that is written on the CG 00 01 occurrence policy form.
What Is Covered
The primary coverage in the ISO Commercial General Liability Policy is the Per Occurrence limit which covers bodily injury and property damage losses to a third party. These losses can result from your ongoing operations or completed operations. “Third party” does not include employees, partners or officers. Here are some examples of losses that are covered by general liability insurance:
|Ongoing Operations – Bodily Injury||A friend of the homeowner stops by your job site to look at the progress of the remodel project. While walking through the job site he trips over some wires and is severely injured and hospitalized.|
|Ongoing Operations – Property Damage||Your employee breaks a bay window while moving some lumber.|
|Completed Operations – Bodily Injury||After the completion of a remodel, some cabinets that were improperly installed by the contractor fall and injure the homeowner.|
|Completed Operations – Property Damage||While installing drywall a contractor accidentally puts a nail into a pipe. Years later water damage is discovered in the same area.|
In addition to bodily injury and property damage, personal injuries and advertising injuries are also covered by general liability insurance. Some examples of personal injury are slander, libel, invasion of privacy and false arrest. Examples of advertising injury include the use of another's advertising idea in your advertisement and copyright infringement.
Contractors General Liability Policy Limits
This limit is the total amount that your policy will pay for claims that did not result from your products or completed operations. This limit is one of two aggregate limits found in a contractors general liability policy. The other is Products and Completed Operation Aggregate. This limit applies to Bodily Injury and Property damage to a third party.
This is the total amount your policy will pay for claims that arise from your products and/or completed operations. This limit is one of two aggregate limits found in a contractors general liability policy. The other is General Aggregate.
This is the total amount your policy will pay per occurrence. This coverage applies to bodily injury and property damage to a third party. Please note that there is a difference between an occurrence and a claim. An occurrence is what gives rise to an insurance claim or potentially multiple claims. An occurrence is can be defined as an accident or a long to exposure to a hazard (i.e. breathing asbestos, ongoing pollution, etc.).
This is a per occurrence limit that applies to liability for a group of specifically named offenses, which don’t involve bodily injury or property damage, aren’t caused by an accident, but nonetheless are liability exposures common to most organizations.
Examples of Personal and Advertising Injury Claims:
▪ False Arrest, Detention, or Imprisonment
▪ Malicious Prosecution
▪ Wrongful Eviction or Entry by a Landlord
▪ Libel, Slander, or Disparagement of an Organization
▪ Invasion of Privacy through Spoken or Written Statements
▪ Unauthorized Use of an Idea in Advertising
▪ Infringement of Copyright, Product Image or Slogan in Advertising
This limit is also commonly referred to as “Damage to Premises Rented to You”. It covers a tenant's liability for damage by fire to the rented premises the tenant occupies.
Medical payments cover bodily injury to a third party on a “no-fault” basis. This means that faulty does not have to be proven. This coverage is not subject to a deductible. This is not to be confused with Bodily Injury coverage which is included in your Per Occurrence Limit
What Isn’t Covered
Tools and Equipment
Damage or theft of tools and equipment is not covered by general liability insurance. Coverage for tools and equipment can be obtained through an Inland Marine policy. Damage resulting from the use of your tools and equipment is covered.
Liability resulting from the use of company vehicles is not covered by contractors general liability insurance. There is coverage for vehicles available under a commercial auto insurance policy.
Losses that result from workplace injuries to your employees are not covered by general liability insurance. This coverage is available through workers compensation insurance, which is mandatory in most states.
Standard Exclusions For Bodily Injury and Property Damage
All ISO CG 00 01 commercial general liability policies begin with the same set of standard exclusions.
- Expected or Intended Injury – Insurance covers losses which are accidental.
- Contractual Liability – You cannot assume liability in a contract and have it covered by your contractors general liability policy. However, some contracts, such as construction indemnity agreements are considered "insured contracts".
- Liquor Liability – Get a separate policy or endorsement to cover liability related to alcohol consumption.
- Workers Compensation – Losses related to workplace injuries to employees are covered by workers compensation insurance.
- Employers Liability – see above.
- Pollution – Although there is a limited amount of pollution coverage available in contractors general liability, coverage for pollution losses should be obtained through a Commercial Pollution Policy.
- Aircraft, Auto, and Watercraft – There are separate policies available for all types of vehicles.
- Mobile Equipment – Losses that arise out of the use of mobile equipment such as a backhoe or loader are covered. Losses that arise out of the transport of mobile equipment aren’t covered.
- War – Liability resulting from an act of war is not covered.
- Damage to Property – This exclusion applies to damage to property owned by you. Property damage to a 3rd party is covered.
- Damage to Your Product – Liability insurance applies to damage resulting from your product, not to your product.
- Damage to Your Work - Liability insurance applies to damage resulting from your work. It won't cover damage to your work.
- Damage to Impaired Property – There is no cover for damage to property that was already previously
- Product Recalls – General liability insurance does not pay for the recall of defective products.
- Personal and Advertising Injury - This is covered under a separate part of the policy.
There are two types of contractors general liability policies: Occurrence and Claims Made. The main difference between the two policies is how coverage is triggered. Occurrence policies cover losses for occurrences that happen during the policy period. Claims Made policies cover losses from occurrences that happen during the coverage period and the claim is filed during the policy period. An occurrence is an event that leads to a loss. The claim is the act of reporting a loss to the insurance company. In general, contractors are better off carrying occurrence coverage.
Endorsements That Effect Coverage Triggers
Many carriers add endorsements to their occurrence policies that restrict the coverage trigger. These endorsements include manifestation wording, prior acts exclusions, and sunset clauses. Manifestation wording defines when an occurrence happens at the moment damage is discovered. A Sunset Clause cuts off coverage for completed operations after a specified number of years, usually, 2-5 years after the policy expires. Prior Work Exclusions eliminate coverage for any projects completed prior to the effective date of the policy.