When something goes wrong on a project, your contractor insurance protection can help shield you from severe financial losses. But if you are covered under both a builders risk policy and a general liability policy, you may be unsure which one foots the bill for an accident or mishap, particularly if you are at fault.
Construction equipment demolish damaged building collapsed roof
Let’s say you are operating a crane, which you accidentally swing into a support column. The result? A collapsed roof on an already completed building.
You have general liability coverage, and you are included as a subcontractor on the builders risk policy taken out by the project owner. So which policy is best for covering workplace damage?
The choice is not always clear.
Builders Risk vs General Liability: Which Do You Choose for Workplace Damage?
Let’s look at both policies to better understand the best course of action when you are responsible for the loss.
The Coverage: General Liability
Your contractor general liability policy (CGL) is designed to cover damage that you cause to third-parties. That includes:
- Property damage
- Bodily Injury
- Personal Injury
In this case, you are definitely the cause of the damage, and the property belongs to someone else. So it could be easy to see why you may immediately think you should bring this claim against your CGL policy. You can call up your insurance company, file a claim, and hopefully the project owner will forget the whole thing ever happened. After all, you aren’t going through his policy, so he won’t have to pay a dime for your mishap.
Before you file a claim against your CGL, however, you may want to consider what it doesn’t generally cover.
Common Exclusions to a CGL Policy:
What your CGL policy doesn’t cover is almost as important as what it does. The following exclusions are commonly found in a CGL policy:
- Your product: property damage to your own products (not real property) which may include your materials and supplies.
- Own property: property damage to property you own, property on which you are performing operations, or any property which needs to be repaired or replaced during the course of your work if you’ve performed it incorrectly.
- Your work: property damage to your completed work.
Contractor general liability is meant to cover damage to other persons or property that is caused by you (or your work). But that doesn’t necessarily make it the best policy for contractor’s workplace damage claims. Which is why builders risk policies are available during construction.
The Coverage: Builders Risk
Builders risk provides coverage for direct physical loss or damage to a structure or project during construction. Builders risk insurance covers all property on a project during construction, installation or repair, including:
- Building or structure
- Temporary forms such as scaffolding
- Fixtures, materials, and supplies intended to become a part of the building
- Machinery, tools, and equipment used to service the building
Generally, a standard commercial construction contract will put the responsibility for obtaining the builders risk coverage on the project owner, developer, or general contractor. The builders risk policy then covers all of the above, plus all levels of subcontractors on the project. A builders risk policy is generally obtained for the duration of the construction project, with coverage ending when the project is complete.
Common exclusions of a builders risk policy may include:
- Faulty workmanship, design, or materials
- Wear and tear
- Extreme weather events
Many builders risk policies are written on an all-peril basis, which means anything not specifically excluded is covered. And that includes your accident with the cement truck. Which means your claim would be covered by the project owner’s builders risk policy.
So which do you choose?
Many times, contractors who want to maintain a good working relationship with a project owner may be reluctant want to file a claim against the owner’s builders risk policy, and prefer to submit a claims under their own CGL policy, instead.
Here’s why that may not work out in your favor.
General Liability May Not Pay
Your general liability may not pay out if a builders risk policy is in place. Your CGL policy may have an “other insurance” clause in place that states the policy will only respond in excess of more specific coverage in place, including builders risk. In this situation, two things would have to occur for your general liability policy to pay out
- You would have to be found negligent for the incident.
- The loss would have to exceed the builders risk limits.
A General Liability Claim May Cost You More in the Long Run
Builders risk policies are generally project specific, so a loss will stay with that policy. But if you file a claim against your general liability, it may impact your loss ratio and premiums for future years. The more claims you file against your personal CGL policy, the higher the cost of your insurance may be as you continue to grow your business.
Best Practices for Choosing Between Builders Risk vs General Liability
- Read and understand both policies, including exclusions. If you aren’t sure what is or what isn’t covered in your policy, ask your insurance provider for clarification.
- When damage or injury occurs, notify the project owner and all other impacted contractors immediately. This can help you maintain a professional relationship with the project owner.
- Contact your insurance provider promptly, and give notice under both the Builders risk and your CGL policy. The insurer will investigate the claim and help you understand your options.
Typically, it is beneficial for the subcontractor to file a claim against the project’s builders risk policy. But for the project owner, it is more beneficial if you file against your own CGL policy. Only you can decide if increased premiums and taking the loss against your CGL is worth maintaining a good working relationship with the project owner. Before you make that decision, make sure you understand the details of each policy, and contact your insurance provider to help you make this decision.
When you have two policies with overlapping coverage, the decision isn’t always clear which one gets the claim. Compared with the high cost of facing a loss without coverage, however, it’s kind of a good problem to have.