As a contractor, your CGL policy is one of the most important purchases you’ll make. It’s at the heart of your New York construction insurance and risk management program, and it creates the foundation for coordinating coverage with any necessary additional policies such as Builder’s Risk, Umbrella/Excess Liability, Professional Liability or Contractor’s Pollution Liability.
But with the constantly evolving nuances and complexities of the Commercial General Liability (CGL) policy, it’s no wonder this can be one of the biggest headaches for contractors. And according to a Towers Watson & Co. survey, general liability insurance rates are expected to increase anywhere from 5 to 20 percent this year, so the last thing you need is an expensive surprise due to a coverage misunderstanding.
To really understand the inner workings of your CGL policy, there are a host of construction insurance coverage issues you have to be aware of, some of them fairly obscure such as the “required degree of fortuity” or the role of causation in coverage interpretation. Then there are the exclusions, the exceptions to the exclusions, and a seemingly endless and impenetrable list of jargon.
Recent court cases involving construction defect claims have only complicated matters, with case law becoming more fluid and unpredictable all the time. Various courts across the country have come up with diametrically opposed interpretations of the meaning of “occurrence,” “property damage,” “arising out of,” and other terms in your CGL policy.
So how do you get a handle on understanding your CGL policy?
The first step is to understand what’s generally covered under a CGL policy. This policy provides coverage for liability arising from bodily injury, personal injury or damage to property of third parties. Standard construction insurance CGL coverage includes:
- Premises/operations
- Liability exposures arising from subcontractors or suppliers
- Contractual liability arising out of indemnity agreements found in contracts
- Products and completed operations
- Defense coverage
But when it comes to avoiding an “expensive surprise,” it’s even more important to understand what’s NOT covered under your policy before claims and allegations arise. And that can get dicey. Your policy can have any number of exclusions, including:
- Pollution
- Mold
- Damage to your product
- Damage to your work
- Property damage to impaired property
- Recall of your products, your work, or impaired property
And there are many more. So what can you do about potential losses that fall under these or any of the other ordinary liability exclusions? There are generally three ways you can deal with excluded coverage:
- Avoidance: cease the activities that give rise to the risk;
- Self-insure the risk or retention: continue the activity but agree to pay the resulting losses out of your own pocket; or
- Transfer the risk using insurance and various types of hold-harmless agreements.
Much of the case law surrounding the definitions of the terms in your CGL policy is the product of underwriters who haven’t had that much experience in the construction industry. So your best plan of attack is to work closely with your insurance professionals to craft a policy that takes every aspect of your business into account. Don’t leave anything to chance.
If you’re confused about your CGL policy, see the experts at BNC Insurance and Risk Advisors. With more than 150 years of experience in New York construction insurance, we have the knowledge and expertise to craft a CGL policy that fits your business. And we’ll make sure you understand every word.
To learn more, download our case study collection, “How Six Contractors Discovered Risk Management Success with BNC Insurance and Risk Advisors.”
