What Does Contractor Liability Insurance Cover?
February 24, 2009
In general, contractor liability insurance pays for property damage or bodily injury claims arising out of the contractor’s operations. As the contractor’s customer, the claims you’re most concerned with are those that occur while the contractor is working on your project—the claims you could become responsible for paying if the contractor can’t. Examples:
- Cost to repair a neighbor’s fence damaged by a delivery truck.
- Medical expenses and lost wages for an inspector hurt by material falling from the roof.
- Costs associated with a fire in your home caused by a plumber’s torch.
Are Construction Defects Covered By Liability Insurance?
Would a construction defect also be covered by the contractor’s liability insurance? The answer is a resounding “maybe.” To answer that question for any particular case requires examining a number of factors.
Is there physical damage or injury?
Some construction defects don’t cause any physical damage or injury – drafty windows that were not installed and sealed properly, for example. Although a reputable contractor would come back and correct the problem if notified, what if the contractor can’t or won’t fix the defect? Can you submit a claim to his insurance company for the cost to have another contractor make the needed repairs?
In this case, the insurance company is likely to deny the claim because no damage or injury has occurred. Liability insurance specifically does NOT cover shoddy workmanship that does not cause a loss. Some owners might claim they’ve lost money to higher heating and cooling bills, or the value of their home has been diminished, but the provisions of many liability policies specifically exclude such claims.
What caused the damage or injury?
One of the typical provisions of a liability policy is that the injury or damage occurs as the result of an unforeseen and unexpected event. If a poorly soldered pipe inside a wall ruptures causing extensive water damage, this could be considered an unforeseen and unexpected event. On the other hand, if your new wood flooring starts lifting up and buckling for no apparent reason, you don’t have a specific event to point to as the cause of the damage.
What are the policy exclusions?
Liability policies are not all the same. Different insurers follow different guidelines in writing their policies. Even the same insurer might offer different coverage provisions to different contractors based on perceived risk. Some policies may exclude construction defect claims of any type whatsoever. Others may allow coverage only if the defect causes an event that results in physical damage and/or bodily injury.
Is insurance coverage still effective?
Again, not al l policies are the same. In the majority of polices, if the defect is the result of something the contractor did while the policy was in force, you can make a claim for up to 10 years after the contractor finishes the project – even if the contractor no longer has that policy. In other cases, if the contractor has canceled his insurance coverage before you make a claim, there may be no policy in effect for you to make a claim against.
What are the limits of coverage?
Before hiring your contractor, you should require he provide you with a certificate of insurance naming you as an additional insured. The certificate of insurance identifies the insurance carrier, policy number, effective dates and policy limits. These are all important bits of information.
Insurance carrier and policy number – You’ll need the name and address of the carrier and policy number if you need to file a claim. You may want to verify the company is real, and that the certificate is valid. It’s not difficult to create a fake certificate of insurance.
Effective dates – Be sure the policy remains in effect for the duration of your project. If it is set to expire before your project is complete, mark your calendar to follow up to be sure the policy is renewed.
Policy limits – Some contractors carry high limit polices, such as $1,000,000 per incident, while others may have more modest policies covering only up to $300,000 per incident. You’ll have to decide if you’re comfortable with the contractor’s policy limits.
Additional insured – It’s important for you to be designated as an additional named insured on the policy. This gives you the ability to submit claims directly to the insurance company without having to go through the contractor. This could be critical if the contractor is no longer in business when you need to file a claim.
Be sure to put the insurance certificate with your important papers so you’ll have it if you need it years later.
The information in this article is presented for educational purposes only and is not a substitute for consulting with a qualified professional. If you are having difficulty resolving a construction defect claim with your contractor, consult an attorney who specializes in this area of the law.
If you need assistance finding an attorney, please contact us using the form at the right.
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