Are You Covered for Your Subcontractors Construction Defects?

Read your policy! That’s advice most insurance professionals give, and for good reason. We not only ask you to please read your policy but read it carefully. We know our advice is taken because we’ll get questions like this: “I read my policy and most of it is about what isn’t covered. What’s left?”

There is a reason why there are so many exclusions in your general liability policy. It’s not a stretch to say if general liability doesn’t exclude it, it’s probably covered.* However, these exclusions are not always clear-cut and can impact your business in a significant way. As a prime example, here’s one of the most important exclusions for general contractors.* It is often referred to as the “YOUR WORK EXCLUSION”:

l. Damage To Your Work – “Property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard”. This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor. (COMMERCIAL GENERAL LIABILITY COVERAGE FORM, CG 00 02 04 13, page 5 of 18)

“Your Work” refers to the homes you build, renovate or add on to. As a general contractor, most if not all of this work is done on your behalf by insured subcontractors. If some defect in their work later causes damage to the home or any part of it, the subcontractors’ general liability insurance will respond first. If the subcontractors’ limits aren’t enough, your policy will pay on an excess basis. This is why the exclusion has this important exception:*

This exclusion does not apply if the damaged work…was performed on your behalf by a subcontractor.

Beware of general liability policies that attach any endorsement removing this exception. Without it, there is little or no coverage for construction defects, a.k.a. products-completed operations claims, if you are a general contractor.

So, what does the “your work exclusion” ACTUALLY exclude? If you have employees that perform any construction work under your supervision, there is no coverage UNLESS this work is scheduled in your policy and an appropriate premium charge is made. This is necessary because work you perform yourself is your first, or primary responsibility. It means that any resulting damage must be covered by your policy first since no subcontractor was involved and therefore, no other policy is available.*

If you would like to discuss your GL coverage needs with a professional insurance agent, call 866-454-2155 or email info@rwcinsuranceadvantage.com. Be safe!

By Doug Davis, RWC Insurance Advantage

*Statements in this article are not intended to modify or replace actual policy language. For a complete explanation of what is covered and what is excluded, please refer to your general liability policy, or discuss your coverage with a licensed insurance professional.