Understanding General Liability insurance- how contractors and consumers benefit

We just had a recent incident where one of our electrical contractor customers measured incorrectly and cut some wires way too short. In seeking details, I discovered that the only damage was the cut wires. So, no claim.

Whoa you say- what do you mean no claim????? Doesn’t the definition of liability state bodily injury or property damage must occur? Aren’t the wires considered property damage? Yes, the definition of liability does say bodily injury or property damage…..to others. And who’s wires are they? The contractor’s. Ohhhhh.

Here’s the thing that many commercial policyholders do not understand: The Commercial General Liability policy was never designed to pay to fix work you screw up. It was designed, however, to pay should something be damaged or someone be injured as a result of you screwing up. Here’s some classic examples:

  • A concrete contractor pours a driveway. It cracks. Someone trips on the crack and breaks their leg. The policy will pay the medical bills associated with the broken leg, but the contractor will have to fix the concrete out of his own pocket.
  • A mason rebuilds a chimney, but calculates the angle too sharply, and the chimney falls through the roof. The policy will pay to repair the roof and any other areas that need fixed, but the mason will have to absorb the cost of rebuilding the chimney.

Two exclusions exist in the Commercial General Liability form (I’m using ISO‘s CG 0001 10-01 as reference) and they spell it out pretty clearly:

  • Damage to property- that particular part of real property that must be restored, repaired or replaced because “your work” was incorrectly performed on it.
  • Damage to your work- “property damage” to “your work” arising out of it or any part of it (although this seems a repeat of the first, it refers more to after the work has been completed).

OK, so this addresses the contractor side. But what if I’m a consumer having the work done and a situation like this occurs? What’s my recourse? You need to know the Commercial General Liability policy is also not a warranty. Again, if the contractor screws up and someone is injured or property is damaged as a result, the policy will pay up to its limit.

But it’s up to the contractor to make good and fix the part that got screwed up. To me this is just good business and a sign of the contractor’s professionalism, but I’ve seen situations where the contractor does not “do the right thing” and must be taken to court. I think this is an important point to note as many consumers think the policy is supposed to pay for “everything”.

I honestly think that contractors knowing that “damage to their work” is not covered will encourage more careful attention and quality workmanship. Because honestly, who wants to do a job twice, with one time for “free”? (not to mention the bad PR associated if you don’t make good). And consumers have a bargaining chip of sorts armed with the same knowledge. They can be more diligent in asking questions, contacting former customers and seeking examples of past work. They want to make sure the contractor is reputable and stands behind their work.

Some questions that surface as I think about it: if the General Liability paid for the screwed up work, then wouldn’t it almost encourage contractors to not put forth their best work? And if the policy had to pay for all these claims, then wouldn’t it eventually be unaffordable or, at worst, unavailable?

Does this information clear up some misconceptions you may have had? Anyone had any experiences similar to what I’ve described, whether professional or personal? Does this topic raise more questions for you?

If so, please comment and I’ll be happy to discuss. As always, thanks for reading.

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About Carrie Reynolds
  • lisa

    Contractor building extensive retaining wall in my yard did not follow requirements of Soil Engineers Report. Now can’t be safely restored and much more expensive wall will have to be constructed…Huge error and omission? can expense difference of wall be covered by his insurance coverage from his error?

    • carriereynolds

      Lisa- as a general rule, commercial general liability only pays for bodily injury or property damage as a result of someone’s mistake, not for the mistake himself.

      If the contractor has a professional liability policy (aka E&O) then this would pay for the error. As a last result, there’s always a civil lawsuit

  • Carrie Reynolds

    Glad you enjoyed. By all means, please link back to the post. My aim is to educate and the more people that read, the better.

  • ביטוח

    Love your post!! Finally someone got it right!!! Would you mind if I put a blogroll link back to your post? :)

  • Carrie Reynolds

    Neetu- glad you enjoyed the post. The purpose of my blog is to educate and I'm so happy that I achieved that goal with you. Please continue to read and share with others. Thanks for reading!

  • Neetu

    Nice post. I really enjoyed reading your blog. I didn't know much about insurance and is now reading about it to know better. Thanks for sharing.
    business insurance offers

  • Carrie Reynolds

    Thanks for reading and glad you enjoyed. Yes, by all means send the query to me. Anything to spur on my thought process is good.

  • thedj

    Awesome post Carrie. I just clicked over here after reading a thread on a DJ chat board, where we were talking about liability insurance exclusions. If you want a topic to post about, I will be more than happy to send the query to ya