There are several common gaps in construction industry insurance policies that contractors should be aware of to ensure adequate coverage and protection. Some of these gaps include:
- Inadequate limits: Underestimating the required coverage limits can leave contractors exposed to financial risks. It is essential to periodically review policy limits and adjust them according to the growth or changes in the business.
- Exclusions and endorsements: Many policies contain exclusions for specific types of work, locations, or materials. Contractors should thoroughly review their policy exclusions and consider additional endorsements to cover unique risks associated with their specific projects.
- Professional liability: General liability policies usually exclude coverage for professional errors and omissions. Contractors providing design or consulting services should consider adding professional liability insurance to protect against claims arising from mistakes or negligence in their professional services.
- Faulty workmanship: Standard general liability policies may not cover damages caused by poor workmanship. Contractors should consider an additional coverage option, such as a Contractors Errors and Omissions (E&O) endorsement, to address this gap.
- Pollution liability: Construction projects can lead to pollution-related incidents, which are often excluded from general liability policies. Contractors should evaluate their exposure to environmental risks and consider obtaining pollution liability coverage if necessary.
- Cyber liability: Construction companies increasingly rely on digital technologies, which exposes them to cyber risks such as data breaches or system failures. Cyber liability insurance can protect against the financial consequences of such incidents.
- Subcontractor risks: General contractors are often held responsible for the actions of their subcontractors. It is crucial to ensure subcontractors carry adequate insurance and to include them as additional insureds on the general contractor's policy when appropriate.
- Employment practices liability: Allegations of wrongful termination, discrimination, or harassment can lead to costly legal disputes. Employment practices liability insurance can help protect construction businesses against these risks.
- Extended reporting period: Claims-made policies, such as professional liability and pollution liability, require the claim to be reported during the policy period. An extended reporting period endorsement, also known as tail coverage, can provide additional time to report claims after the policy's expiration.
- Coverage for owned, leased, or rented equipment: Contractors should ensure that their policies cover all equipment types, whether owned, leased, or rented. Inland marine insurance, for example, can provide coverage for tools and equipment during transportation or storage.
Contractors should work closely with an insurance broker familiar with the construction industry to identify and address potential coverage gaps, mitigating the risks associated with their specific projects.
The Mahoney Group, based in Mesa, Ariz., is one of the largest independent insurance and employee benefits brokerages in the U.S. An employee-owned organization, we’ve been providing our clients with the confidence to face whatever lies ahead for more than 100 years. For more information, contact us online or call 877-440-3304.
This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.