Contractors – What’s Really Covered in that CGL Policy?
Joe the carpenter walks into your agency looking for an insurance policy. (Most likely Joe only knows that he needs a Certificate of Insurance to get on the job site tomorrow morning!) Did he sign a Contract with a General Contractor and/or Property Owner? If so, do you know what’s in that contract? Does Joe subcontract any work? Does he have those subcontractors sign a contract with hold-harmless wording? Does he keep Certificates of Insurance on file for each subcontractor?
If you ask Joe, he may not even know the answers to all these questions. Let’s face it. What Joe wants is a “cheap” policy, but does the cheapest policy really protect his business and his assets? How can you be sure the quote you obtained has the coverages Joe needs? Take a good look at the endorsements and exclusions on the quote. Some carriers may provide quotes at very low prices which also limited coverage. Be aware of common endorsements that exclude or limit important coverages for contractors.
Here are a few endorsements and exclusions to consider:
ISO CG2139 Contractual Liability Limitation Endorsement (or similar company endorsements) –
The ISO Commercial General Liability Coverage form excludes damages for which the insured is obligated to pay by reason of having assumed liability under a contract. However, some coverage is given back in this exclusion for an “insured contract”. Included in the definition of an “insured contract” is that part of any contract or agreement pertaining to your business…under which you assume the tort liability of another party to pay for bodily injury or property damage to a third person or organization.
The CG2139 changes that definition of an insured contract. In a nutshell, the liability the contractor assumes by signing a contract with a general contactor or owner will not be covered by a CGL policy with this endorsement. The policy will not indemnify the owner or GC. Does your insured understand this?
TAKE AWAY: Some carriers add this endorsement to a contractor’s policy to have the ability to selectively approve the insured’s contracts on a case-by-case basis, rather than insuring them on a blanket basis. If this endorsement is on the policy, have you made certain that every contract the insured signs have been approved by the carrier and added to the policy? Have a conversation with your underwriter. Often times, they can remove this exclusion for an additional premium.
Designated Work or Designated Ongoing Operations Exclusion – Some carriers may exclude specific classifications. For example, you write that policy for Joe the Carpenter. The proper carpentry classes are listed on the policy. However, there is a Designated Work Exclusion on the policy that excludes Roofing. Chances are that Joe may take on a job to repair a roof if the price is right. Did you point out this exclusion to the insured?
TAKE AWAY: Make sure you’ve discussed all the types of work that the insured may perform during the course of the policy term. Make sure all classifications the insured needs are on the policy. Some carriers are willing to include incidental classes on the policy on an “if any” basis. (Meaning the insured will be charged for this exposure upon audit if any work for this classification was done during the policy term.)
Independent Contractors Exclusion – If your insured subcontracts out ANY work, you don’t want to have this exclusion on the policy. This exclusion removes coverage for claims arising from the acts or omissions of independent contractors while working on behalf of the insured.
TAKE AWAY: Ask the insured about the possibility of hiring independent contractors. If the insured advises that subcontractors are never used, make sure that they are aware of any Independent Contractor Exclusions.
Contractors Warranty – Many carriers add warranty wording which requires the insured to obtain Certificates of Insurance from all subcontractors evidencing minimum limits of liability. In the event the insured does not have certificates on file for subcontractors, the insured could be charged upon audit for the subcontracted work as if it were direct payroll or sales. Some carriers have even stricter wording that may limit or deny coverage if the insured fails to provide proof of compliance with the Contractors Warranty.
TAKE AWAY: Discuss any Contractors Warranty with the insured and explain the implications of noncompliance.
Every contractor has their own specific coverage concerns. Communication is the key to getting the insured to understand that coverage is just as important as the price (if not more important).