Common Limiting Endorsements or Exclusions from Contractor’s Liability Insurance Policies
Most Contractors and Subcontractors in California do have - or should have - General Liability Insurance Policies, to cover claims and lawsuits and judgements against them for personal injuries caused to other persons by their construction operations or liability for property damage which they may cause to another’s real or personal property caused by the insured’s construction work or operations.
Such insurance policies also typically agree to defend the insured from any claims or lawsuits for personal injury or property damages brought against the contractor or subcontractor by third persons, such as a property owner, neighbor, another contractor or subcontractor, passers-by, and the like.
Just the costs of defending a lawsuit can be prohibitive for most contractors, much less the consequences of any adverse judgment against the contractor or subcontractor
And where a contractor does not have adequate insurance, the property owner may be left without any real recourse for his or her losses should an accident or property damage occur due in whole or in part due to the contractors’ work.
Most form Construction Contracts - such as the American Institute of Architects and Associated General Contractors form contracts - also expressly require the contractor or subcontractor to carry such liability insurance, and require the contractor to provide proof of such insurance, such as a “Certificate of Insurance” from the Insurer or Insurance Broker, as a condition of the contract, or a condition to receiving payment under the contract or subcontract.
In California, on “Home Improvement Contracts” for residential construction projects defined in Bus. & Prof. Code § 7151.2, the prime contractor is required by 16 Code Calif. Reg. § 872 to include in the prime contract in large type certain basic information on its Liability Insurance policy, if any.
However, many insurance policies today contain added “Endorsements” or “Exclusions” - typically drafted by the Insurance Services Organization (“ISO”), or custom exclusions drafted by the insurer itself - which can limit or undercut the coverage under the liability insurance policy, the Certificate of Insurance, or the minimum insurance information required to be disclosed by the prime contractor to the Homeowner.
Thus, it is very important both for contractors and subcontractors as well as property owners and others, to actually review - or have their attorneys review - the policy itself and all referenced or attached Endorsements and Exclusions, to make sure the coverage provided is adequate for the specific project and the risks anticipated to be encountered on that project.
Some of the more common current Endorsements or Exclusions on Contractors’ and Subcontractors’ Liability Insurance policies are as follows:
Endorsement CSGL 00016 00 08 16 - called a “Subcontractor’s Warranty Endorsement”, requires you to make sure all your subcontractors have the same amount of insurance as you do, that all your subcontractors name your company as an “Additional Insured” on their insurance policy, that the subcontract with each of them requires that they “hold harmless” the prime contractor’s company - and the property owner- against any liability caused by the subcontractors’ work.
This is a very common endorsement, and if a contractor fails to follow these requirements, the insurance company will limit the amount it will pay in claims against you from other persons.
The Contractor should make sure to at least get Certificates of Insurance from ALL its subcontractors naming it as an Additional Insured under all their policies.
Endorsement CSGL 00044 00 01 17, the “Additional Insured – Owners, Lessees, or Contractors – Scheduled Person or Organization” endorsement provides that where a contract (typically the Prime Construction Contract with the property owner, or Subcontracts) required that a contractor name your client or others as an “Additional Insured” on your insurance policy – as is common in many form construction contracts – then they are automatically made “Additional Insureds”, with the need to obtain a specific additional endorsement naming then as additional insureds, as had been the practice in prior years.
A similar endorsement – CSGL 00045 00 01 17 – does the same thing for Additional Insured coverage under the “Operations Completed” or “Completed Operations” coverage provisions in your insurance policy.
Endorsement CSGL 00017 00 08 16, the “Amended Definition of Suit Endorsement”, limits the claims for which they are required to provide you a defense to actual lawsuits or arbitration proceedings, and thus would not cover mediations, etc that take
place before a lawsuit or arbitration proceeding has begun, although the insurer would have the right to participate if it wanted to.
The “Waiver of Transfer of Rights of Recovery Against Others to Us”, endorsement CSGL 00036 00 08 16, allows the insured to waive the insurance company’s rights under its policy to sue other persons who have caused you to be liable to a third party (sometimes called the “Right of Subrogation”), provided the waiver was agreed to before any injury or loss occurred.
If you do so after the loss or damage have occurred, that could affect your coverage under your insurance policy!
The “Earth Movement Exclusion” – number CSGL 00206 00 08 16 – provides that it does not cover you against claims for damages caused by any landslide, mudflow, subsidence, erosion, or the sinking, settling, slipping, caving in, falling or other movement of land or earth, even if such movement is combined with any other cause, such as water leaks, flooding, rain etc etc.
This is a VERY BROAD exclusion, and contractors doing excavation, grading, land movement or land fill etc, so a contractor may want to or likely should purchase an endorsement removing this exclusion, either for a particular project or generally, depending on how much of this work you do!!
An endorsement may be available for a specific project. Obviously, the damages from such an occurrence could potentially be enormous!!
Other endorsements – number CSGL 00237 00 0816 and others – exclude from coverage under your liability insurance policy any liability arising out of any wok by you on any new construction work (including any renovation, remodeling or structural repairs) in connection with any new condominium, townhouse or cooperative housing project
Another similar common exclusions is the “Condominium or Cooperative Conversion Exclusion, number CSGL 00223 00 08 16, which provides that the Completed Operations Coverage in your insurance policy will not be effective on a project that involves conversion of a building to condominiums or a cooperative development.
Other exclusions may apply to any new residential construction work whatsoever!
These latter exclusion exist because of the large number of Construction Defect lawsuits filed regarding these kinds of projects.
So if a contractor or subcontractor is contemplating doing a project involving this kind of work, it may want to try to purchase a project-specific endorsement which eliminates or waives this exclusion, at least for any such project that you do any design, site work, remodeling or construction work.
The add the additional insurance costs for these added endorsements would likely affect the contractor’s contract price!
These are just examples of a few of many, many other Endorsements or Exclusions which an insurer might put on a Liability Insurance policy.
Read them all and ask questions of the broker in writing, or seek competent legal advice for any significant construction project, or otherwise you may not get the kind of insurance coverage you think you are paying for, or which you need!!!!!!
N.B. The contents of this Article do not constitute legal advice or create an attorney-client relationship, and you may NOT rely on it without seeking legal advice regarding your particular situation from a competent California Insurance lawyer or Construction Contracts attorney.
Please also note that factual situations vary, and statutes, regulations and case law as well as the terms of insurance policies, endorsements and exclusions are frequently and constantly changing and evolving, and these written materials thus also may now be or may become outdated or incorrect.
For further information on this topic and how the current law and policies may apply to your unique project, contract, job, claim or issues, Contact Us via email, phone (415)788- 1881 or visit our website at www.wolfflaw.com for other contact information.