Category Archives: Commercial General Liability Insurance

Subcontractor’s Warranty Endorsement

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Those who are contractors, construction companies, maintenance companies, or other companies that use subcontractors may encounter “Subcontractors’ Warranty Endorsement” on their Commercial General Liability policies. This endorsement requires contractors to obtain additional insured status on the CGL policy of their subcontractors and to make their policies secondary to their subcontractor’s. In addition, contractors may face significant consequences if they do not meet the endorsement’s requirements.

The language of the “Subcontractors’ Warranty Endorsement” can differ among insurance providers, but the main terms of an endorsement mostly remain the same. A subcontractor’s policy must list the contractor as an additional insured and as a requirement for coverage for any insured under this policy the insured must ensure that all subcontractors maintain Commercial General Liability insurance from a company with a “A” rating and minimum liability limits of  $1,000,000 per occurrence and $2,000,000 general aggregate and  $2,000,000 products and completed operations aggregate. Additionally, the insured must be listed as an additional insured on all such subcontractors’ commercial general liability policies.

The endorsement may also require the contractor to secure an indemnity agreement from the subcontractor in addition to having additional insured status on the subcontractor’s policy.

Loss Exposure of Contractors

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Contractors are subject to some unique loss exposures. When a prospective client needs certain types of construction work done, contractors either bid for the job or negotiate a contract. Due to this, the customer specifies what should be done in the job specification. It is common for contracting businesses to have multiple locations. There are frequent changes to the job site. There may be a contractor who controls one job site while the employees or subcontractors control other job sites simultaneously or sequentially. As a contractor, you are exposed to a unique range of loss exposures. It is imperative for any contractor to evaluate and analyze their risks before obtaining contractors insurance.  

Insurance Loss Runs: How Do They Work?

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An insurance loss run is a report that lists all claims made on a particular insurance policy over a specified period of time. Loss runs are typically requested by insurance underwriters when evaluating an insurance application or renewal, and they can also be used by policyholders to help identify trends or potential issues with their insurance coverage. Loss runs typically include information about the date and type of loss, the amount of the claim, and the status of the claim (e.g., open, closed, pending). They may also include details about the policyholder’s insurance coverage.

Depending on the number and type of open claims on your report, there will be a section with a reserve fund. An insurance company sets aside a certain amount to cover claims. Nevertheless, the final cost of a claim can vary from the set aside amount.

Insurance Premium Audit

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Your insurer conducts a premium audit to become sure you have paid the proper premiums over the period of the policy for the insurance coverage you need.

By analyzing your company’s financial records, an insurance premium audit determines your actual risk exposure. Every year, your insurance company conducts an audit of your policy.  

Typically, when you start a new insurance policy, you estimate your business costs, payroll, and income.  Audits are performed by insurers or independent auditors at the end of policy periods to determine gross revenue and payroll data for individuals or businesses.

 Auditing an insurance policy should follow several best practices:

To ensure a successful audit, it is crucial to plan ahead and collect all the necessary documentation in advance. Organize your records and documents so the auditor can easily access them. Despite the possibility of higher premiums, be honest about the business’ operations and risk management practices. You should ask the auditor questions if you have any concerns or if something is unclear.

As a general rule, an insurance audit is conducted to ensure that the insurer has the right insurance premiums in place to protect against potential risks. In order to ensure a smooth and efficient audit, businesses should follow these best practices.

Sunset Clause aka Sunset Provision

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A sunset clause on a liability policy is an endorsement that limits the coverage provided by the policy to a specific period of time, and can limit the reporting period of a claim. This means that if a policyholder is insured under a policy with a sunset clause and a claim is made for a loss that occurred during the policy period, but the claim is not reported until after the “sunset” date, the policy will not provide coverage for that claim.

For contractors, a sunset clause on a liability policy can be particularly problematic as construction projects can be complex and claims may not be discovered until long after the project is completed. For example, a defect in the construction work may not be discovered until several months or even years after the project is completed.

Therefore, contractors should approach a policy with a sunset clause with caution, and consider the potential risks and liabilities of the project before purchasing a policy. They should also consider purchasing an extended reporting period (ERP) or “tail coverage” option to provide coverage for claims that may arise after the policy period but were not reported during the policy period.

It’s important for contractors to discuss the sunset clause and ERP options with their insurance professional to ensure that they have the right coverage for their business. They should also carefully review the terms, conditions and exclusions of their insurance policy to understand the scope of coverage and any limitations.

State and Subdivision Permit Endorsement

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A state and subdivision permit endorsement is a type of endorsement that can be added to an insurance policy to provide coverage for certain permits and licenses that are required by state and local governments. These permits and licenses can include building permits, zoning permits, and other types of approvals that are required for construction or other business activities.

The state and subdivision permit endorsement covers the cost of obtaining and maintaining the required permits and licenses, as well as any legal fees or fines that may be incurred as a result of violations of these permits and licenses. This endorsement is typically available for businesses that are involved in construction or other activities that require a significant number of permits and licenses from state and local governments.

By adding a state and subdivision permit endorsement to their insurance policy, businesses can protect themselves from the financial impact of obtaining and maintaining the required permits and licenses. This can help businesses to avoid delays and disruptions to their operations caused by issues related to permits and licenses.

Commercial General Liability

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Commercial General Liability Explained

A commercial general liability (GCL) is an insurance policy that protects you and your business from a financial loss. Your company may be liable for injuries or damages to a third party resulting from the services or products you offer to the general public. Liabilities do arise from accident, error (by omission or commission), or non-professional negligence that causes another person harm or financial loss. No matter how highly trained and professional you and your employees are, you can’t completely rule out certain unwanted and unforeseen circumstances.

How Does Commercial General Liability Work?

Commercial general liability is a risk management plan that specifically covers your business from claims from a third person. Depending on a company’s line of business, A CGL policy can be designed to cover different eventualities under the following basic categories:

–       Bodily Injury  Liability

If a customer or any other individual visits your business site and gets injured, you may have to cover the medical payment. Body injury coverage implies that certain negligence has caused the event. Sometimes you may not directly cause the injury, but so long it happens within your business premises, you may still be found legally negligent. For instance, the injured person may claim he slips because you fail to place warnings signs around the wet floor. CGL insurance policy covers hospital bills and nursing expenses for an injury. Also, it covers funeral expenses if someone is injured and killed in an accident on your business premises.

–       Property Damage Liability:

If your business is found liable for damages to a third party’s physical property either on or off-premises, the policy will help you mitigate the financial cost of the liability. Third party’s property damages could be directly from your business activity or from a product offer. For example, if a home appliance which your company produced malfunctioned and caused a fire incident to a buyer’s property. You may be liable under non-professional negligent acts.

–       Personal and Advertising Injury Liability:

This helps cover your company from any legal responsibility arising from business infractions such as libel, copyright infringement, false arrest, entry or eviction of privacy, and slander.

Who Needs CGL Insurance?

Every business owner needs a CGL policy to help secure their businesses from legal suit that can adversely affect their trajectory. Liability payment for just a single legal action against your business could cause an irrecoverable bankruptcy and reputation damage. You can prevent such by insuring your company with a CGL policy customized for your line of business. The policy can be bought as a stand-alone coverage, as part of Commercial Package Policy, or as part of a Business Owners Policy.   CGL policy is a must-have whether you are a contractor or a tradesperson.

Does CGL Cover Workers Compensation?

Insurance regulations for businesses often set a distinction between coverage for the general public and the employees. CGL is meant to cover third-person, and it doesn’t cover employment practices liability and workers compensation. A workers compensation policy, which also covers employers liability, can be bought as a separate policy.

Different Types of Commercial Insurance for Contractors

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Commercial General Liability Insurance

Commercial General Liability (CGL) insurance protects business owners against claims of liability for bodily injury, property damage, and personal and advertising injury (slander and false advertising). Premises/operations coverage pays for bodily injury or property damage that occurs on your premises or as a result of your business operations. Products/completed operations coverage pays for bodily injury and property damage that occurs away from your business premises and is caused by your products or completed work.

Excess liability insurance pays for covered losses that exceed your CGL policy’s dollar limit.

Umbrella liability insurance is excess liability insurance coverage above the limits of automobile liability and CGL policies. The umbrella policy also provides liability coverage for exposures not covered under the primary CGL insurance policies and not excluded by the umbrella liability insurance policy.

Claims-Made Versus Occurrence Policies

Occurrence policies cover claims arising from injury or damage occurring while the policy is in force, regardless of when the claim is first made.

Claims-made policies cover claims that arise from injury or damage occurring during the policy period and reported to the insurer during the policy period. Claims arising from events outside the policy period or claims reported to the insurer outside the policy period are not covered unless special coverage is purchased or arranged with the insurer. This special coverage comes in two forms:

  1. Prior acts (“nose”) coverage covers claims that arise from injury or damage occurring before the policy period, but reported to the insurer after the policy period begins.Prior acts coverage is provided by establishing a “retroactive date” covering injury or damage occurring after the retroactive date. The retroactive date usually appears in the declarations page accompanying your policy. It may be the effective date of the policy or an earlier date. Prior acts coverage does not cover claims that were known at the time your policy began.
  2. Run-off (“tail”) coverage, also called extended reporting period, pays for residual claims made after your policy expires. A typical claims-made policy provides a short reporting period of 30 or 60 days after the policy’s expiration date to file claims that arose too late to report before the policy expired. Run-off coverage starts when the 30- or 60-day period ends and is provided for an additional premium. The extended reporting period may be one, three, or five years, or even unlimited.

If a claims-made policy does not continue (expires, cancels, or nonrenews), you should purchase either run-off coverage from your previous insurer or prior acts coverage from your new insurer to prevent coverage gaps. Generally, claims-made policies may be less expensive in their early years as the potential for claims increases as policy years accumulate.

 Workers’ Compensation Insurance

Workers’ compensation provides benefits to employees who are injured or become ill during the course of or due to employment.

In California, every employer is required to carry insurance to cover the cost of occupational injuries and illnesses. This insurance requirement is mandatory even if you have only one part-time employee. Companies based out-of-state with employees hired in California must also have California workers’ compensation insurance.

Workers’ compensation covers various types of events, injuries, and illnesses. An injury could occur by a single event, such as hurting your back in a fall at work. Injuries could also be caused by repeated exposure, such as hurting your wrist at work from doing the same motion over and over.

A workers’ compensation injury or illness is one that occurs due to employment. If you are injured you will receive help no matter who was at fault.

No. Workers’ compensation is only for injuries or illnesses that occur due to employment. State Disability Insurance (SDI) is for injuries or illnesses that are not work-related. SDI is a benefit provided by the Employment Development Department.

Workers compensation laws were created to ensure that employees who are injured on the job are provided with fixed monetary awards. This eliminates the need for litigation and creates an easier process for the employee. It also helps control the financial risks for employers since many states limit the amount an injured employee can recover from an employer.

Workers Compensation Insurance is designed to help companies pay these benefits. As a protection for employees, most states require that employers carry some form of Workers Compensation Insurance.

Workers Compensation Insurance is not health insurance. Workers Comp is designed specifically for injuries sustained on the job.

In most states, if you have employees, you are required to carry Workers Compensation coverage. Even in non-mandatory states, it can be a very good idea, particularly if you have many employees, or if they are engaged in hazardous activities.

Commercial Auto Insurance

Commercial auto insurance is a vehicle insurance policy that provides protection for a business’ vehicles and its drivers. Employees involved in on-the-job collisions will receive coverage for medical injuries as well, regardless of fault.

Commercial vehicles are any vehicles and trailers that a business or company uses to transport job-related materials, goods or equipment. Work vehicles have insurance premiums paid for by the company, unlike policies for personal vehicles that the vehicle owner pays for.

The most common type of commercial auto insurance is liability coverage, which most states require. It covers a driver liable for damaging cars or injuring others. Other types of commercial auto insurance include collision, uninsured, gap and personal protection.

Factors that can increase premiums include the type of vehicle driven, safety devices such as air bags and automatic seat belts, anti-theft devices and parking locations. A company’s previous insurance claims can also affect the cost of insurance.

Builder’s Risk Insurance AKA Course of Construction Insurance

Builder’s risk insurance is a special type of property insurance which indemnifies against damage to buildings while they are under construction. Builder’s risk insurance is “coverage that protects a person’s or organization’s insurable interest in materials, fixtures and/or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from a covered cause.”

Buildings are subject to many different risks while under construction. They may catch fire, be damaged by high winds, or fall victim to other force majeure. A principle of common law is that any new construction or other improvement to land becomes property of the owner of the land – the title holder – once there has been an “improvement” to the owner’s site. Builder’s risk insurance indemnifies against some of these losses.

Builder’s risk insurance usually indemnifies against losses due to fire, vandalism, lightning, wind, and similar forces. It usually does not cover earthquake, flood, acts of war, or intentional acts of the owner. Coverage is typically during construction period only, and is intended to terminate when the work has been completed and the property is ready for use or occupancy.

It is usually bought by the owner of the building but the general contractor constructing the building may buy it if it is required as a condition of the contract. It may be necessary to show proof of insurance to comply with local city, county and state building codes.