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General Liability Insurance

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Work-in-progress!  This page is not perfected yet.  Please check back for the finalized version, which will have still more information.

Even with the best of insurance programs, it is important to understand what types of losses are covered by traditional liability policies and what types of losses are not. If construction problems result, for example, in roofs or windows that leak, concrete that cracks, or siding that warps, traditional Comprehensive general liability policies should provide defense and indemnity coverage. And the policies should provide coverage regardless of whether claims are asserted under theories of breach of contract or warranty, or under tort theories such as negligence or strict liability.

It should be noted that traditional CGL insurance policies will not cover lawsuits arising out of contractor cost overruns or delays. Moreover, such policies contain several exclusions that bar coverage for certain aspects of a construction project. Policies typically exclude property damage resulting from "your work" and "your product." Under these exclusions, a subcontractor may not have insurance coverage for claims for damage to its own work arising out of its own poor workmanship. Under older ISO forms that were standard before 1985, these exclusions could also affect coverage for the developer unless the developer purchased what was known as the "broad form property damage endorsement." Newer ISO forms in effect since 1985, however, have made clear that the "your work" and "your product" exclusions do not apply to the developer.

Many other exclusions do apply uniformly to developers, GCs, subcontractors, and other project participants. The subsidence exclusion, for example, bars claims for property damage arising out of earth movement or soils settlement. The interpretation of the subsidence exclusion varies from state to state and depends upon what other factors also contribute to the earth movement (like faulty design or workmanship).

When Does Coverage Apply?
Standard form CGL policies are triggered by property damage occurring during the policy period. Thus, physical injury to property must occur during the policy period. This is a different legal question from determining when an owner's claim arises. Under the law of most states, a claim for property damage resulting from construction defects will arise, and the statute of limitations will begin to run, when the owner learns that his property has been damaged or contains latent defects. In situations where damage is ongoing but the owner does not notice damage until several years later for example, micro-cracking in concrete that only results in major cracks after several years insurance policies in place years before the owner makes a claim may provide coverage. In contrast, in situations where latent defects are discovered that may lead to future property damage, the owner may file a lawsuit long before property damage takes place.

Where property damage takes place continually or progressively over several years, courts have wrestled with the question of which insurance policies provide coverage. Insurance companies have argued that damage occurring over several years should be covered by only one of the policies in place during that span of time for example, the policy in place when the damage commenced or the policy in place when the damage manifested itself. Under the better view, adopted by California and many other states, courts apply a "continuous trigger" that imposes coverage on each policy in place during the time span when property damage is occurring.

Many types of construction defects do not result in physical injury to tangible property until long after the project is complete. Case in point: MOLD. Toxic molds have been known to cause headaches, allergic reactions, and other maladies in people, and in some cases insurers have had to pay the cost of replacing an entire home to remedy the problem.

A common mistake made by developers is to obtain first-rate insurance coverage during the period of construction and then not require project participants to maintain insurance for future years when claims are likely to arise. When a disgruntled owner files claims for construction defects years after the project is complete, developers often find that some of the project participants have gone out of business or let their insurance lapse, leading to coverage gaps.

Developers can obtain what is known is "tail coverage" that applies to claims of property damage occurring for a period of years after the project is complete. Tail coverage is often intended to coincide with the applicable statute of limitations or statute of repose (e.g., ten years in California). Several insurance companies now offer tail coverage through endorsements, and it is likely that this product will become more widespread in the future.

The NYS statute of Limitations is 6 years from signing, unless the contract says different.

These days, one of the most important parts of hiring a contractor is making sure they are 'properly insured'. These issues described herein apply to all contractors, but are even more critical to the roofing industry. Insurance companies will underwrite and rate contractors based on the nature of the work they perform; and the rates applied to roofers are some of the highest in the industry. Due to this fact, many companies 'loophole' the roofing rates by avoiding the roofing endorsement, telling insurance underwriters that they do not do roofing, or that they only do incidental roofing as a general contractor.

Contractors will carry two primary insurance policies:
(1) Workers Compensation: This insurance covers all employees for personal injury that work directly or indirectly for the company. Most New York companies, especially roofers, are covered by one company called the New York State Insurance Fund (NYSIF). Most other worker's compensation carriers will not venture into the New York market due to its high risk of employee injury in combination with unique New York State Laws that govern insurance companies. Note: any subcontractors who work at your home should also have their insurance verified.
(2) Liability Insurance: This insurance covers all operations and liabilities of the contractor while performing your job, including any possible property damage or personal injury caused to anyone other than the direct employees during work operations. This insurance is the one that has incurred the most recent changes as of late. Again, due to the fact there is a risk of very high rate of claim in the industry, the insurance companies have gotten very strict and very expensive in this field. ALL POLICIES WRITTEN FOR CONTRACTORS FROM CARPENTRY TO PLUMBING HAVE A SPECIFIC "EXCLUSION" FOR ROOF OPERATIONS, AND ONLY WITH A SPECIFIC "INCLUSION" IS A COMPANY ALLOWED TO PERFORM ROOFING OPERATIONS.

Standard liability policies include exclusions for property damage the insured causes to its own work. The reasoning behind these exclusions is to treat an insured's work as a "business risk" or "commercial risk" to be retained by those performing the work, who presumably are able to control the risk.

In the past, these exclusions have included an exception granting coverage to the insured for damage arising from work done by a subcontractor on the insured's behalf. Originally intended to protect builders for physical damage liability that was outside their control, the exception has become a legal loophole to trigger a general contractor's liability policy in construction defect cases.

It is not unusual for a builder to be offered a policy that has exclusions, such as:

The expectation of the homeowner is that remedy for poor construction and damage is covered by the builder. Un­fortunately, many builders cannot buy sufficient protection and; quite possibly, many have bought a policy that outright excludes anything that might happen, and ultimately claims will not be covered.

Binding Arbitration and Right-to-Cure, Is Your State Next? That is a very real threat!