Devil in the Details – Read Your General Liability Insurance Policy Closely

When presented with a contract, consumers should “read the fine print.” This adage is particularly important to general contractors (GCs) who have obtained a commercial general liability insurance policy and those who hire them. Many GCs believe that a general liability insurance contract will protect them for any hazard or event that could transpire in a workplace or on a project. General liability insurance policies offer broad general coverage but usually include riders or exclusions that limit the carrier’s liability in certain instances. Some policies include endorsements, which are additional provisions added to the general liability policy, that may enhance or detract from the coverage provided.

General liability insurance policies typically cover the costs of damages to third parties who are injured as a result of the GC’s work. They may also cover injuries sustained by the GC’s employees on a job site, though workers’ compensation policies often augment the general liability coverage. General liability policies typically contain exclusions that limit the insurer’s obligations to cover certain claims against the insureds.

For example, a general liability policy will exclude coverage for claims of breach of contract, negligence, or substandard work. An insurer should not be liable when the insured does shoddy work or when the insured purposefully breaches a contract. If a homeowner sues a general contractor alleging the work was deficient and he/she was forced to hire another contractor to either repair or re-do the work, the GC will likely find that there is no insurance coverage to cover these damages. If, however, someone is injured because of defective work, then the general liability policy will likely cover such a claim and provide legal representation to the insured. In this scenario, the policy would cover personal injury claims raised by an injured third party, but the cost of the repairs would be excluded from coverage and the responsibility of the insured.

Another common exception to general liability policies concerns independent contractors. Insurance policies typically cover employees of the GC but disclaim any coverage for subcontractors or independent contractors. GCs should ensure their subcontractors or independent contractors have adequate insurance of their own in the event of a workplace injury.

Designated work exclusions seek to carve out certain types of work from coverage under general liability policies. These may include working on residential home projects, which statistically lead to more claims than those in commercial or public projects. When hiring a GC for a home project, it is critical to confirm the GC has insurance coverage for the anticipated scope of work.

A GC should thoroughly read the policy and all riders, endorsements, and exclusions. To be valid, exclusions to policies must be written clearly and be unambiguous because any confusion will be held against the party drafting the contract. The issue of ambiguity to a layperson is distinct from ambiguity in the industry; what may seem confusing to a lay reader is probably clear to an insurance practitioner. If you are hiring a general contractor, it is critical to obtain a copy of the GC’s policy and read it thoroughly to get an idea of what types of injuries and claims are covered, and more importantly, what is excluded from coverage.