General Liability Insurance

Commercial general liability insurance is a key part of a contractor’s business profile.  With construction defect litigation on the rise, contractors are more often becoming targets for lawsuits.  Now more than ever, it’s important for contractors to understand the coverage available in their general liability policy.  The purpose of this article is to educate contractors about the fundamentals of commercial general liability insurance, what it covers and what it doesn’t cover.

Standard vs. Manuscript
The Insurance Services Office (ISO) provides standardized policies for insurance professionals.  This allows agents and brokers to know the exact coverage that they are presenting to their clients without having to continuously read new policies.  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.  For the purpose of this article, we will be using the ISO CG 00 01 policy.


What Is Covered
The preeminent coverage in the ISO Commercial General Liability Policy is 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 the jobsite to look at the progress of the remodel project.  While walking through the jobsite he trips over some wires and is severely injured and hospitalized. 

Ongoing Operations – Property Damage

A contractor’s 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.

 

What are all the differnt limits on my general liability policy?

 

General Aggregate Limit – This limit is the total amount that your policy will pay from claims that did not result from your products or completed operations. This limit is one of two aggregate limits found on the Commercial General Liability policy. The other is Products and Completed Operation Aggregate. This limit applies to Bodily Injury and Property damage to a third party.

 

Products/Completed Operations – 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 on the Commercial General Liability policy. The other is General Aggregate.

 

Per Occurrence – 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.).

 

Personal/Advertising Injury – 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 

 

Fire Legal – This limit is also commonly referred to as “Damage of Premises Rented to You”. It covers a tenant's liability for damage by fire to the rented premises the tenant occupies. 

 

Medical Payments – Medical payments covers bodily injury to others on a “no-fault” basis. This means that faulty does not have to be proven. This coverage is not subject to 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. 

Vehicles
Liability resulting from the use of company vehicles is not covered by commercial general liability insurance.  There is coverage for vehicles available under a commercial auto insurance policy. 

Workers Compensation
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. 

 

15 Standard Exclusions For Bodily Injury and Property Damage
Most general liability policies written for contractors have more than 15 exclusions.  However, they all start with the same standard 15, which immediately follow the insuring agreement. 

  1. Expected or Intended Injury – Insurance covers losses which are accidentalIf a contractor intentionally causes damage it will not be covered. 
  2. Contractual Liability – Some contracts such as indemnification agreements are considered “insured contracts”.  You can find a list of insured contracts under the definitions section of theAll other contractual liability is excluded.  Here is an example of a contract that would be excluded: Contractor A is working on the same jobsite as Contractor B.  Since Contractor B doesn’t have insurance, Contractor A decides to write a contract with Contractor B that says if Contractor B has a claim, Contractor A’s insurance will cover it. 
  3. Liquor Liability – A business can be held liable for losses related to alcohol consumption at companyFor example: if a client attends a contractor’s holiday party, gets drunk and gets in an accident on the way home, the contractor could be liable for the damages from that accident.  There is a separate endorsement available for this coverage.
  4. Workers Compensation – Losses related to workplace injuries to employees are covered by workers compensation insurance.
  5. Employers Liability – see above.
  6. Pollution – Although there is a limited amount of pollution coverage available in commercial general liability, coverage for pollution losses should be obtained through a Commercial Pollution Policy.
  7. Aircraft, Auto and Watercraft – There are separate policies available for all types of vehicles.
  8. 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.
  9. War – If for some reason a contractor is held liable for a loss resulting from an act of war, that loss would be
  10. Damage to Property – This exclusion applies to damage to property owned by theProperty damage to a 3rd party is covered. 
  11. Damage to Your Product – Liability insurance applies to damage resulting from your product, not to your
  12. Damage to Your Work - Liability insurance applies to damage resulting from your work, not to yourFor example, you build a fence and a week later the fence collapses.  Damage to the fence is not covered.  But if the fence collapses and damages a car, damage to the car would be covered. 
  13. Damage to Impaired Property – There is no cover for damage to property that was already previously
  14. Product Recalls – General liability insurance does not pay for the recall of defective products.
  15. Personal and Advertising Injury - This is covered under a seperate part of the policy.  

Coverage Triggers
There are two types of commercial 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 policy period.  An occurrence is the 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. 

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 as 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. 

The purpose of this article is to provide contractors with a brief overview of commercial general liability insurance and is not intended to be an in depth study of the policy.  For more information you can read the complete Commercial General Liability Policy.  For an instant online quote go to http://glquote.com.