What Recent General Liability Rulings Mean for Your Insurance Rates

Crane 1By Jake Morin

A commercial general liability (CGL) policy is a standard insurance policy issued to protect business organizations from certain liability claims. This type of policy is intended to protect businesses from certain financial losses that may arise from construction-related claim, such as personal injury or property damage. However, recent court rulings in several states have resulted in a broader interpretation of what should be covered by CGL policies. Such rulings effectively turn the CGL policy into a warranty, which it is not intended to be. The intention of the CGL policy is to cover property damage and bodily injury that occurs as a result of the work being done, not to provide a warranty against any potential subpar work.

At first glance these recent rulings might sound beneficial to clients and construction companies with the onus falling on insurance companies to cover the costs of these claims. However, these kinds of unprecedented payouts could have long-term consequences. The additional costs insurance companies will accrue as a result of covering this extra layer of claims may result in insurance companies significantly increasing their insurance rates in impacted states, or pulling out of specific states altogether.


Changing Rulings in Various States Signal a National Shift     

Of all the states seeing shifting interpretations of CGL policy claims, Colorado by far is experiencing the most significant changes. In 2010, Colorado legislators and Governor William Ritter passed legislation requiring that CGL policies be interpreted under the presumption that that property damage caused by a contractor, including any damage that takes place during a construction project, is an accident that triggers coverage under the CGL policy. Consequently, Colorado insurance rates for construction projects increased to two-to-three times higher than in neighboring states and several insurance companies have pulled out of the state altogether. Most recently, a court in New Jersey ruled in August that a subcontractor’s faulty workmanship is considered property damage and thus, the insurance company was on the hook for paying this claim. California and Texas are moving in a similar direction, and it’s possible that more states will implement similar changes.

Recognizing the Regulations

There are a few key takeaways for construction companies given this shifting interpretation of CGL coverage by various states. First, avoid litigious claims as much as possible. Construction businesses can protect their interests by putting checks and balances in place to gain confidence that contractors and subcontractors are operating safely, and consistently providing high-quality work. Second, to protect from legal claims in the future, it is important to set expectations and document work with clients from inception through completion to avoid frustration or confusion. Finally, to ensure proper coverage and risk mitigation, it is important to have a trusted insurance provider with specialized construction knowledge, an acute awareness of industry trends and familiarity with recent state regulations.

Jake Morin joined ProSight Specialty Insurance in January 2013 and currently serves the company as niche president of construction. 

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