Commercial General Liability Insurance in the Construction Industry

What policy exclusions are included in your commercial general liability insurance (“CGL”) policy?  If you do not have coverage, one mistake by an employee or a subcontractor, working on your behalf, can devastate a business.  The insurance industry can be tricky, read on to find out what contractors should be doing to keep their businesses covered under CGL policies.

Standards for Construing Insurance Contracts

Insurance contracts are construed according to their plain meaning, with any ambiguities construed against the insurer and in favor of coverage.  U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871, 877 (Fla. 2007).  Further, “in construing insurance policies, courts should read each policy as a whole, endeavoring to give every provision its full meaning and operative effect.” Auto–Owners Ins. Co. v. Anderson, 756 So. 2d 29, 34 (Fla. 2000).  While exclusionary clauses cannot be relied upon to create coverage, principles governing the construction of insurance contracts dictate that when analyzing an insurance policy the pertinent provisions should be read in pari materia.  State Farm Fire & Casualty Co. v. CTC Development Corp., 720 So. 2d 1072, 1074-75 (Fla. 1998).  This is a fancy way of saying, when reading your insurance policy each applicable provision must be read together.  The intent behind this principle is to provide uniformity.

“Your Work” Exclusion

One of the most common, and most talked about, exclusions in CGL policies is the “Your Work” exclusion.  “Your Work” is typically defined as work or operations performed by the insured or on the insured’s behalf, and includes materials, parts, or equipment furnished in connection with such work or operations.  Almost every policy issued for contractors, in today’s industry, contains this exclusion or something similar.  The purpose of this exclusion is to limit coverage for construction defects.  Something to consider for Certified General, Building, and Residential Contractors is to purchase the subcontractor exception to the “Your Work” exclusion.  This provides additional coverage for work performed on your behalf by subcontractors.  Obviously, there will be an increased premium for your policy; however, it may save your company, in the event a lawsuit is filed because of defective work performed by a subcontractor.

Application of “Property Damage” in CGL Policies

Most CGL policies define “Property Damage” as “[p]hysical injury to tangible property, including all resulting loss of use of that property.”  In Florida, courts have consistently held that faulty workmanship or defective work that has damaged the otherwise non-defective completed project has caused “physical injury to tangible property”; if there is no damage beyond the faulty workmanship or defective work, then there may be no resulting “Property Damage.”  J.S.U.B., Inc., 979 So. 2d at 889; Auto-Owners Ins. Co. v. Pozzi Window Co., 984 So. 2d 1241, 1248 (Fla. 2008); See West Orange Lumber Co. v. Indiana Lumbermens Mut. Ins. Co., 898 So. 2d 1147, 1148 (Fla. 5th DCA 2005); Auto Owners Ins. Co. v. Tripp Constr., Inc., 737 So. 2d 600, 601 (Fla. 3d DCA 1999).  Consider the following example, roof is defective which causes damage to interior drywall and flooring.  Under the definition of “Property Damage” explained above, the roof would not be covered; however, the resulting damage caused by the roof could be covered (i.e. interior drywall and flooring), depending your applicable policy exclusions.

Conclusion On Commercial General Liability Insurance

If you are Certified General, Building, and Residential Contractor, it is equally important to have subcontract agreements in place with each of your subs requiring you to be listed as an additional insured and have an indemnity provision.  Additionally, at a bare minimum, you should require your subcontractors to maintain insurance coverage that covers resulting damage caused by defective work.  It is imperative that you read your subcontractor’s CGL policies, as well as your own, to understand what is covered and what is not.  If you are uncertain regarding the meaning of an exclusion or endorsement in a policy, consult with your attorney or insurance agent.

For additional information about the topic of Contractor Insurance in Florida, read this blog article:

https://www.jimersonfirm.com/blog/2017/11/insurance-requirements-florida-contractors/