Contractors, Avoid These General Liability Mistakes
Anyone who’s been on a jobsite knows there are dangers everywhere. Sharp things, heavy things, electrified things, moving equipment, and combustibles. We’ve written about jobsite safety before, but our suggestions weren’t exhaustive because we omitted an invisible danger. It’s lurking everywhere on a site and, more importantly, it can stick with you long after the job is done. We’re talking about liability. Misunderstanding your insurance coverage can literally decimate your business and finances, so we’ve collected some of the best liability advice we’ve come across below. In that spirit, the author is not an insurance professional and makes no claims regarding the accuracy of the information herein and is to be held harmless for any inaccuracy. Please consult an insurance professional about your general liability policy. With that said, contractors can avoid these general liability mistakes by being prepared.
1. An incompetent agent/broker and a weak insurance company. The agent/broker might be good at some policies and might be acting in good faith, but construction liability may not be his or her forte. You may want to move along to an independent agent/broker who knows the construction business. Independent agent/brokers can work with many insurance companies instead of representing the interest and offering the products of a single insurance company. Before purchasing any policy, know what grade or rating the insurance company has. If a company has a “C” rating or below, it’s financially unstable compared to its peers and less likely to be able to pay claims in a triggering event. Purchasing a policy from a poorly rated insurance company can also disqualify you from some work.
2. Endorsements/exclusions – here be monsters. You want to get to work. You don’t want to fiddle around insurance contracts. But this area of a contract is what can bankrupt a contractor even years after a job is finished if coverage wasn’t adequate. Be sure you know what your coverage includes for:
- Work performed by subcontractors – Who is financially responsible, when, and for how long?
- Sunset – You may be covered now, but a sunset means coverage can lapse in the years to come, and that’s when it might be needed.
- Pollution – What’s your liability now and into the future for waste directly generated by construction and for the work you leave behind?
- Manifestation – This is another ghost of work past. With this endorsement, you might still be liable if a work defect is not discovered for years.
- Designated work – Are you actually covered for all the tasks you’ll perform? If it’s not designated work, you may not be.
- Limited Contractual Liability – Are you sure the subcontractors’ policies indemnify you?
- Prior Work Exclusion – You may not be covered for jobs that you’ve long since completed.
- Many other exclusions are possible – Asbestos, formaldehyde, foundation work, and so on. Like everything else, you’ve to to read the fine print to know where your risk is.
Final General Liability Mistakes to Avoid
3. What triggers it and when it’s claimed makes a difference. This warning is similar to some of the endorsements/exclusions but it bears repeating. A lot of time can lapse between a triggering event and when the claim is made. In this lapse you may think you may think you don’t have any more liability to incur, but you can’t be sure. Work with your insurance representative to shield yourself from any nasty surprises.
4. Subcontractors’ Certificates of Insurance. A subcontractor might give you a certificate of insurance and many GCs are satisfied with that. But it could have expired or otherwise lapsed, which will leave you in a big bind. Be sure to verify that the insurance is valid before work begins.
We hope you are always and everywhere insured against claims. It’s natural for GCs to simply want to get to work, but reading the fine print of insurance policies is critical to the long term success of contracting. All contractors can avoid these general liability mistakes if they take the time to prepare. If you’re a Pro, and you have insurance tips, add them in the comments below—or contact us with your own Pro tips.