Sometimes what’s not covered in your contractor liability insurance policy is just as important as what is covered. We want to take you beyond the basics of liability insurance for your construction business, so let’s talk a bit about the exclusions you may have in your policy, how they may limit your coverage, and why they are there in the first place.
Beyond the Basics of Contractor Liability Insurance: Understanding Policy Exclusions
Insurance Term Definition
A policy provision that eliminates coverage for certain risks.
You may be wondering why your liability policy has exclusions to begin with. The purpose of an exclusion is to limit risks that may otherwise be included in your policy, for reasons such as:
- The coverage may already be provided for in a different policy
- Claims may be considered uninsurable (such as certain catastrophic events)
- Claims may be against public policy (such as breaking the law or harming a person)
Here are some examples of exclusions you may find in a general liability policy.
Expected or Intended Damage Exclusion
Your general liability coverage is meant to cover accidental property damage or injury. It should be of no surprise then that intentional damage is excluded from your policy. If you intend to damage someone else’s property, or cause them bodily harm, don’t expect your liability insurance to kick in and pay for the offense.
There’s really no policy or endorsement available that will cover you for intentional damage to another person or property. If you accidentally cause damage or harm to another person, that’s one thing. Willful misconduct is quite another. The best protection you have against expected or intended damage to another person (or their property) is to behave like a professional, keep your cool, and expect your employees to do the same.
Contractual Liability Exclusion
Have you ever signed a contract with an indemnity agreement, or “hold harmless” language? Your contractor liability insurance may have an exclusion for contractual liability if you sign a contract or agreement in which you assume liability for bodily injury or property damage. In other words, when you’ve assumed the liability (and financial consequences) for another party in a contract or agreement.
There are exceptions to a contractual liability exclusion, however. One notable exception is liability that would be imposed by law if there were no contract or agreement. In more simple language, that means not acting carelessly in a way that might risk the health and safety of another person. Again, acting like a professional is once again key to your risk management strategy.
Damage to Property Exclusion
While your liability policy will cover claims for third-party property damage, this exclusion means there is no coverage for any property owned, rented to, or occupied by you. This exclusion also includes property loaned to you, as well. If you borrow a hydraulic lift and damage it, you cannot file a claim against your policy to repay the cost of fixing the equipment even though the lift technically belongs to a third-party. If you have borrowed something, it is considered your property and therefore is not covered by your liability coverage.
Talk to your insurance provider to find out what policies you can use to protect your property, such as equipment and tools that you’ve borrowed, leased, or bought. For example, an inland marine policy may protect your tools and equipment in transit to a project site, and a builders risk policy may protect your tools, equipment, materials, and supplies stored on a project site.
The property covered by your general liability policy is “tangible” property, and electronic data is not considered tangible in a general liability policy. Your general liability policy may exclude any damages as a result of loss of, damage to, or inability to access electronic data.
If your laptop is stolen from your work truck, and the customer information that you had inside lead to identity theft, your general liability policy won’t cover the costs of a lawsuit. That doesn’t mean you can’t protect your “intangible” data property, however. Cyber liability insurance is available to keep this kind of accident from costing you big. You may be able to add an Identity Theft endorsement to your general liability insurance coverage as well.
Workers’ Compensation & Employers Liability Exclusions
If you failed to provide workers’ comp insurance for your employees, your liability insurance will not cover any claims resulting from an employee injury or illness. Whether you have workers’ comp coverage or not, your liability coverage may exclude any lawsuits from employees (or their families) for injuries.
Your liability insurance doesn’t cover employee injuries because this coverage is already provided for in another policy. In most states, you are required by law to carry workers’ comp insurance for your employees. If your employee is injured or becomes ill doing their job, the claim would be covered by your worker’s comp policy.
Professional Liability Exclusion
Contractor general liability policies often include a Professional Liability exclusion. This exclusion eliminates coverage for “bodily injury, property damage, and personal and advertising injury arising out of the rendering of or failure to render any professional services by you or on your behalf.” This exclusion applies to engineering, architectural, or surveying services in connection with the work you perform, but not allegations of faulty construction through your normal operations, techniques, and methods.
If you want to protect your contractor business further, you may want to consider adding a professional liability policy to your insurance coverage. A professional liability insurance policy may cover you in the event of a lawsuit from economic or financial loss to a third-party.
Exclusions in your liability insurance don’t necessarily mean you are exposed to risks that could cost you in the long run. The right combination of contractor insurance policies and the occasional added endorsement may be all you need to reduce the risks facing your business and keep you protected from unexpected and unintended accidents that you face as a contractor.