With costs continuing to rise in every aspect of the construction industry, contractors are scrambling for ways to cut those costs. And since insurance is one of their biggest expenditures, many are adjusting their coverage in an effort to reduce their premiums.
But too many are exposing themselves to a minefield of liabilities.
Unfortunately, many contractors aren’t aware of some exclusions in their CGL policy. And with the constantly evolving nuances and complexities of these policies, it’s no wonder. But it’s critical that contractors – especially general contractors (GC), construction managers (CM) and owners – know what their policies do and do not cover.
CGL policies often include a number of tedious endorsements – and it doesn’t help that different insurance carriers use different labels for many of these forms. Here are a few of the more common ones to watch out for:
- Contractual Limitation: The standard CGL form provides pretty broad contractual coverage. But insurance carriers – especially in the E&S markets – will often attach ISO form CG2139 (10/93), Contractual Liability Limitation, which effectively removes most contractual coverage. This is another gap in coverage you should always try to have removed.
- Classification Limitation: Insurance carriers use this type of endorsement to restrict coverage to the specific operations and exposures they have classified and rated for on the policy. But commercial lines classifications were never intended to include every aspect of a contractor’s operations, so they leave a lot of “wiggle room” for coverage disputes when a contractor is involved in ancillary activities not clearly delineated by the classification. You should try to have these limitations removed, or at least have the insurance carrier use a manuscript form that clearly states which activities are covered.
- Injury to Employee: Often referred to as “Labor Law” exclusions, these are intended to preclude coverage for claims by injured employees typically made against the general contractor and/or job owner, alleging violations of “safe place to work” requirements. Here in New York, with “action over” claims being so common, it’s not unusual for insurance carriers to attach forms that eliminate this exception to the employee exclusion. That causes a major gap in coverage, and you should always try to have this type of limitation removed.
- Independent Contractors Limitation / Subcontractor Warranty: These endorsements establish minimum insurance requirements for subcontractors. Failing to comply can result in the nullification of coverage, so you should work closely with your underwriter or broker to have these removed – or at the very least, use the least restrictive version.
- Total Pollution Exclusion: Some carriers include a “Total Pollution Exclusion” in their policies. This is more restrictive than the standard ISO GL pollution exclusion, and it eliminates the exceptions to the standard exclusion. You should try to have this exclusion removed, and consider buying a separate Contractors Pollution policy.
- Damage to Work Performed by Subcontractors on Your Behalf: If you use subcontractors, you need to beware of ISO form CG2294 (10/01). This endorsement – or an insurance carrier’s equivalent – eliminates the exception to the exclusion for damage to “your work” in your CGL policy for work performed by your subcontractors on your behalf. This causes another dangerous gap in coverage, and you should negotiate to have it removed.
A properly written contract and a thorough understanding of your contractor’s GL policy are your best protections against these landmines.
With more than 150 years of experience in the New York construction industry, BNC Insurance and Risk Advisors can craft a policy that fits your business and provides the most reliable roadmap for navigating the New York construction insurance minefield.
To learn more about how Milbrandt helps New York contractors, download our case study report "How Six Contractors Discovered Risk Management Success with BNC Insurance and Risk Advisors" and discover how managing the cost of risk is much easier with an expert construction insurance partner.