11 Common Construction Coverage-Limiting Endorsements

Contractor’s general liability policies can contain a myriad of amendatory endorsements and exclusions. Careful review of the terms and conditions, especially when working with Excess & Surplus markets, is critical to ensure proper coverage for insureds and no unpleasant surprises when a loss occurs. This e-mail explores 11 of the most common and challenging endorsements and exclusions found on contractor’s general liability policies, as defined by Amwins Inc. Insurance. Injury to Employee Endorsements: These endorsements restrict coverage for bodily injury to the insured’s employees that is assumed by the insured under an insured contract or agreement. This is a very common form used by many carriers, which is particularly concerning for contractors operating in New York where “Action Over” claims are relatively common. These endorsements are often informally referred to as “Labor Law” exclusions, which intend to preclude coverage for claims by injured employees or workers. Sub-Contractor/Independent Contractor Injury Endorsements: Similar to the Injury to Employee Endorsements, these forms typically eliminate ‘Action Over” or “Labor Law” coverage as respects injury to independent contractors and their employees. The upstream contractor or job owner would typically look to the downstream subcontractor for coverage should any downstream contractor’s employees be injured (via the indemnification agreement in the construction agreement). The elimination of coverages for these “Action Over” type claims presents a major gap in coverage for contractors utilizing sub-contractors. Classification Limitation Endorsements:  These endorsements are used by insurance companies to restrict coverage to specific operations they have classified and rated for on the policy. If the limitation does not fully capture all contractor’s ancillary activities and operations, there could be coverage disputes and a denial of claims. If these exclusions cannot be removed, it is imperative that the classifications or business descriptions utilized be made as broad as possible to ensure they are inclusive of all the insured’s potential activities. Contractual Limitation Endorsements: Most General Liability policy forms provide relatively broad contractual coverage. Some insurance companies look to eliminate wording that provides coverage for liability assumed in a construction agreement including for “Action Over” type claims. These limitations also rarely comply with the requirements of construction agreements, which could create legal and financial issues in addition to uncovered claims. Damage to Work Performed by Subcontractors on Your Behalf Exclusion: If a contractor utilizes subcontractors, this type of restriction presents a significant gap in coverage. For General Contractors, it virtually eliminates completed operations property damage coverage, at least in respect to the work done on behalf of the General Contractor by its subcontractors. Independent Contractors Limitation / Subcontractor Warranty Endorsements: These endorsements establish minimum requirements for subcontractors relative to what is considered “adequate insurance” and what risk management controls must be in place. Failure to comply with these endorsements results in one of four types of penalties: (1) Coverage is nullified (commonly referred to as a hammer clause), (2) a higher deductible will apply to any loss resulting from the work of the subcontractor, (3) a lower limit of liability applies, or (4) a higher rate of insurance applies to the sub cost for the subcontractor (to be picked up at audit). If the removal of such endorsements is not possible, every effort should be made to avoid the first type of penalty (hammer clause). Prior Work Exclusions: These exclusions create a significant gap by excluding coverage for work completed prior to the inception date of the policy. Any future “occurrence” related to work done prior to the policy inception is excluded. Subsidence / Earth Movement Exclusions: Subsidence or earth movement exclusions are being used much more often. Underwriters will typically agree to remove these exclusions if the insured can demonstrate proper controls (e.g., routine geotechnical review) and that there is no history of subsidence claims. For contractors involved in ground up construction, foundation construction, excavation or any other activity involving the movement of earth, these limitations are particularly onerous and create a significant coverage gap. Residential Exclusions: Contractors of all types, including “commercial” contractors, may get involved to some degree in residential work, even if on a very incidental basis. Coverage for such work may be excluded entirely by these exclusions and it is imperative to fully understand the scope of such exclusion to ensure gaps in coverage do not exist. Total Pollution Exclusions: : Carriers often attach a “Total Pollution Exclusion” to their policies which eliminates the exceptions to the General Liability standard exclusion. As most contractors have a need for this coverage, consideration should always be given to the purchase of a separate Contractors Pollution Policy. Cross Suits Exclusions: These endorsements are sometimes very broad and may exclude coverage for suits by any insured against any other insured (i.e. additional insured vs. Named Insured). There are also examples where carriers include language that precludes coverage for suits by employees (with no exception for liability assumed under an “insured contract”). This is a major concern in states such as New York where employee “Action Over” claims are common. Careful review of terms and conditions in contractor’s general liability policies is critical. The examples noted in this article are just a few of the restrictive forms you should be aware of. The Construction Practice at Levitt-Fuirst has the expertise and carrier relationships to help you navigate the various challenges in this space.

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