Your agent is the one to help you avoid them
Most General Liability insurance carriers are wary of insuring contractors because of the high frequency and severity of construction defect claims that have occurred nationwide. As a result, many insurance carriers, especially those in the excess and surplus lines marketplace, are frequently using the following exclusions that take away much needed coverages:
- Residential Construction Exclusion: Believe it or not, residential construction is riskier than commercial construction due to the the frequent class action lawsuits filed within certain subdivisions.
- Tract/ Row/Condo/Townhome Exclusion: These types of projects are considered risky since they seem to invite class action lawsuits and lawsuits from homeowners associations looking for a deep pocket to fund normal maintenance and wear and tear issues just prior to the running of a statute of repose for construction defect lawsuits.
- Subcontracted Work Exclusion: Many policy forms actually exclude lawsuits arising out of work performed by subcontractors.
- Product and Completed Operations Exclusions: Some carriers that want to eliminate almost all of their risk for construction defect claims will insert this exclusion.
Why would insurance carriers and agents that cater to contractors even offer a policy with these exclusions to their clients who would be so negatively impacted? This is a good question that defies logic. As a general rule, only inexperienced insurance agents would set up their contractor clients with such deficient policies. An insurance agent who is knowledgeable and specializes in contractors would know how to find carriers that don’t have these problem exclusions.
Furthermore, these problem exclusions are just the tip of the iceberg when designing quality coverages for contractors.
Source: Trina Swartz, “Beware Of Leaky Contractors Coverage,” Agent Market Source, Fall/Winter 2008-2009.