Dear David: Can You Share Liability Insurance Advice for Smaller Companies?

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Dear David,

I am a smaller general contractor, what advice do you have for us smaller companies about liability insurance? 

Dear Size Does Not Matter,

Bill Wilson says it best in “When Words Collide,” 1) Read the Full Policy (RTFP). This is the advice no matter the size of the contractor. We recently had the pleasure of reviewing two smaller general contractor’s insurance programs. Each program written by a different agent. Each program is placed with a different insurance company. The surprises inside are the same things we find on the larger contractors. 

General Liability.

1. Beware of a condition precedent to coverage applying. Hopefully, some awareness exists to the conditions section of a traditional insurance policy. These conditions must be complied with or else the insurance company can decline to extend coverage to an otherwise covered claim. Most policyholders should be aware of the notice requirements or their obligation to cooperate with an investigation. Few people are paying attention to new conditions being added by endorsements. 

A condition precedent to coverage applying means that the policyholder (you) must do whatever the condition is before the promise (coverage) by the insurance company will be fulfilled. 

Central Insurance Company has form 8-2221 06 15 Notice to Policyholder-Premier Homebuilder which makes as a condition precedent to the application of General Liability coverage that the policyholder must collect certificates of insurance from ALL subcontractors.  

“All subcontractors must show evidence that they have general liability coverage of their own, and that their limits are ‘adequate’ – defined as a minimum of $500,000 Each Occurrence / $500,000 General Aggregate / $500,000 Products – Completed Operations Aggregate or the limits on our policy, whichever is less.”

The real strength of this notice to the policyholder is that the premiums charged for the coverage are directly tied to the policyholder meeting this requirement. The language does not limit the requirement to the project with a claim. 

2) Beware of exclusions that involve wind. The slightest breeze could cause a claim to be denied. These types of exclusions are not in a base ISO CGL coverage form. Sutton Specialty Insurance Company under their Manuscript Commercial General Liability Coverage Form SSI GL 00 01 0621 excludes liability coverage for a bodily injury or property damage claim which,

a. arising out of,
b. resulting from,
c. caused by,
d. contributed to,
e. or in any way involving, in whole or in part, from any naturally occurring event, including, but not limited to Weather related events, such as hurricanes, tornadoes, tropical storms, severe winds, hail, lightning, and floods. 

The relevance of this to a liability claim the contractor could face is that an act of nature cannot typically be predicated by an act of man. This means that if a responsibility of a contractor should have been followed before the “naturally occurring event” and if followed could have prevented injury or damage and it was not fulfilled then the contractor could be liable.  Most would at least expect their insurance company to defend them against such an allegation—but not under this policy language. The contractor is likely left funding the defense of claim on their own and having to pay for coverage counsel if the facts support burning more money to get coverage granted. 


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David Princeton

David Princeton, CPCU, AMIM, AIC, CSRP, is the principal consultant of AdvocateClaimService.com, an expert witness, and contributing author of Be Intentional: Culture. He attends Marquette University Law School and previously served as a director of corporate risk and as a lead claim specialist.

Advocate Claim Service takes the anxiety out of claims. Our mission is the strategic presentation of claims to get policyholders the benefits owed under an insurance policy. Claim consulting services are provided to Policyholders, Brokers, and Attorneys. As licensed insurance professionals, we have over 35 years of insurance claims experience across a wide array of coverage lines. In addition, our Insurance and Risk Management consulting practice is well suited to provide clarity to just about any insurance program before a loss occurs.

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