Liability Dangers for GC's and Contractors

Everyone business owner wants his or her insurance to be affordable (you know, cheap!) but if you're a construction professional, there are some very important things that you should know about your business liability insurance that have probably never been fully explained to you and that you need to be aware of. Fortunately, we’re experts in insuring the construction industry and we’re happy to answer any questions that you have and educate you as much as possible on these topics.

We speak with contractors daily who claim that they’re paying very little for their insurance and that they’re happy with the price – until we explain to them WHY it’s so cheap and that in many cases they are putting their livelihood at risk and may be making a de facto ‘donation’ to the insurance company.  The reason is because most of these liability policies are very basic and they have many limitations and they don’t contain the specific coverages (‘endorsements’) necessary such as Additional Insured, no Class Code Limitation, no coverage for Uninsured Subs and other important details. If it’s cheap, there’s probably a reason and you aren’t aware of it – or how it could impact you in a very devastating way. It’s your responsibility to work with your agent and make sure that your business is insured and protected correctly.

While there are many more (and in order to keep this article brief) listed below are a couple of the most common endorsements (policy modifications) in your general liability insurance that you should look for and ask questions about:

• Uninsured Subcontractors Endorsement – If you’re a roofer or general contractor, especially in states like Texas, there’s a strong chance that you use uninsured subcontractors to provide services and perform trade work. The problem is that general liability policies almost always exclude any coverage for any uninsured subs – which means that in the event of a claim for damages or injury related to anything that an uninsured sub was involved with (even in the slightest), you’ll have zero insurance coverage and you’ll have to pay all legal bills, repair expenses and settlement costs from your own pocket.  The way to avoid this is to make certain that the policy contains an Uninsured Subcontractors endorsement which changes the policy and extends coverage over the work and operations of these uninsured subcontractors. There will be an extra cost to add this coverage because the insurance company is not only insuring you and your business, but they are now also providing insurance coverage for the operations performed by your uninsured subs as well.

• Uninsured Subcontractor “Sublimits” – Some companies and/or policies will include ‘sublimits’ on certain activities performed by uninsured subs, even if they are added to the policy. For example, if you’re a roofer using uninsured subs to perform roofing work, the policy may provide $1M in liability insurance, however, the company may limit coverage to $50,000 for any work performed by these uninsured subs. They’ll still insure the work of these uninsured subs, but they’ll limit their risk exposure to $50,000.

• Class Code Limitations – Insurance companies use ‘class codes’, or 5-digit codes, to identify the various risks being insured.  For example, code 98677 is “Commercial Roofing”, code 98678 is “Residential Roofing”, code 97047 is “Landscaping” and so on. In many cases, especially in the construction industry, insurance companies will specifically list the codes for the various types of work being performed and develop the coverage and the resulting insurance premium based on those codes and the level of risk that they represent for claims. In addition, many companies will also include a Class Code Limitation endorsement which, in essence, states that the only work insured under the policy is for the class codes that are specifically listed. If you expand your business or perform services or work outside of the class codes listed on the policy, you’ll have no insurance protection whatsoever in the event of a claim.