A solid foundation is the start of every construction project. With the proper footings and reinforcement, a well-engineered foundation can support the weight of a building for many decades. Construction insurance, likewise, needs a foundational coverage that protects your contracting operation from liability claims. General liability is the foundation of contractor insurance coverage.
What is General Liability Insurance?
General liability provides coverage for bodily injury and property damage for which you are legally liable. Most general liability policies are issued using an ISO (Insurance Services Office) standardized form, called the CG0001. There are many edition dates of the CG0001, including the most recent form issued in April of 2013. The language of each edition is similar, but small changes are made, as needed, to address judicial interpretations or clarify policy language. For this discussion, we will look at the language of the CG0001 0413 General Liability Coverage form. Keep in mind that your policy may use an alternate edition with slightly different wording. As always, reading your policy is critical to understanding terms, coverage, conditions, and exclusions.
The general liability insuring agreement reads as follows:
We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply. We may, at our discretion, investigate any “occurrence” and settle any claim or “suit” that may result. But:
(1) The amount we will pay for damages is limited as described in Section III – Limits Of Insurance; and
(2) Our right and duty to defend ends when we have used up the applicable limit ofinsurance in the payment of judgments or settlements under Coverages A or B or medical expenses under Coverage C.
In many insurance policies, words that found inside quotes (or sometimes in bold print) are defined terms. There are 4 defined terms in this section of the insuring agreement:
- “Bodily injury” means bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.
- “Property damage” means:
a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it.
- “Suit” means a civil proceeding in which damages because of “bodily injury”, “property damage” or
“personal and advertising injury” to which this insurance applies are alleged. “Suit” includes:
a. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or
b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.
- “Occurrence” means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.
The general liability coverage form provides coverage for both the payment of claims and defense costs. The latter – payment of defense costs – is important for policyholders to understand. Many claims made against contractors, and other types of businesses, may not actually be valid allegations. Some claims may take years to reach a settlement and incur substantial attorney fees. The general liability policy contract requires the insurance carrier to investigate the claim, determine whether the allegation has validity and pay for defense costs and settlement of the claim ( the duty to defend). Defenses costs are generally outside the coverage limit, meaning they do not erode the amount available to pay claims.
It is also important to note that the duty to defend an insured only applies to covered claims. If the insurance carrier feels the allegations of the claim may not be covered, or only partially covered, it may issue a “reservation of rights” letter. This letter indicates to the insured that all, or part of the claim, may not be covered. If the insurance company determines the claim is not a covered loss, they may have the right to withdraw their duty to defend.
What is not covered by General Liability?
Part 2 of the general liability policy details the specific policy exclusions. Many of these exclusions are included because other types of insurance exist to provide coverage, such as commercial auto, workers compensation or employment practices liability. Some exclusions may be modified by endorsement to the policy. Other exclusions, such as War, are simply not insurable exposures. The exclusions listed in the general liability policy are:
- Expected or intended injury
- Contractual liability
- Liquor liability
- Workers compensation and similar laws
- Employers liability
- Aircraft, auto or watercraft
- Mobile equipment
- Damage to property
- Damage to your work
- Damage to impaired property or property not physically injured
- Recall of products, work or impaired property
- Personal and advertising injury
- Electronic data
- Recording and distribution of material or information in violation of law
General liability insurance is considered the foundation of business insurance, but it obviously not the only policy your business may need. Any business that has employees needs workers compensation, employers liability, and employment practices liability. If your business owns vehicles, you likely need a commercial auto policy. Tools, equipment, and inventory should be covered under an equipment floater or property insurance policy. Many contractors should purchase pollution and/or professional liability coverage.
Get a Quote for General Liability
At Safeguard Insurance, wet provide Nevada contractors with the coverage they need, at an affordable price. Contact us today for a no-obligation quote or review of your current business insurance plan.