As a homebuilder, you count on your insurance to financially protect you in case of a claim, but are you aware of what your policy doesn’t cover?
Whether problems arise from your work, a subcontractor’s work or faulty materials, the homeowner will most likely turn to you for a resolution. According to Home Inspection Insider, these are the most frequent defects arising from new home inspections:
- Foundation and framing issues, including cracks due to settlement, damaged framing materials, and uneven roof or floor trusses
- Drainage problems, leading to seeping water or flooding
- Faulty window insulation or flashing, causing cracks, fogging or poor functionality
- Interior and exterior door issues, such as failures to latch, lock or seal
- Heating and cooling system concerns, due to faulty or insufficient equipment or improper installations
- Electrical issues, from breakers and outlets to lights and appliances
- Plumbing problems, such as leaks or inadequate ventilation
- Roof concerns, including faulty materials, improper installations, incorrect designs or inadequate sizing of gutters and downspouts
- Sloppy painting, where paint is thinned or unevenly applied, leaving drips or splatters
- Issues with exterior finishes, such as when stucco, siding, stone veneer or brick is damaged, crooked, cracked or installed without proper wall prep, insulation or sealing
Most homebuilders carry contractors commercial general liability (CGL) insurance, but some of the most common claims against homebuilders fall outside CGL coverage. Looking at the details may help you discover gaps in your protection.
What does contractors general liability insurance cover?
CGL insurance covers you if you or your workers damage someone’s property or injure someone in the course of your work. It does not cover the cost to repair your work or the damage to your work. But it does cover the cost to repair damage to the preexisting property as well as medical, legal and other expenses related to the damage or injury.
If you must redo your work, you will have to bear the cost of that. For example, say a homeowner complains their cabinets aren’t hung right or their window leaks, but their home hasn’t been damaged. Your CGL policy would not pay to fix the cabinets or the window. But if the leak had destroyed the surrounding drywall or flooring, your CGL would likely pay to repair those damaged areas.
What if you discover the damage after your CGL policy has ended?
Duration is key to CGL coverage. Standard CGL policies are occurrence-based. Occurrence-based means the thing that caused the damage must have occurred while the policy was in force.
For example, say you installed a window that later leaks. The leak damages the surrounding drywall. You don’t learn about the damage until after your CGL policy has expired, but the leak happened during your policy’s term. In this case, you may be able to turn to your policy to help with the cost of drywall replacement.
What does contractors professional liability insurance cover?
A contractors (or construction) professional liability policy insures against errors and omissions made by a licensed professional involved in the design, engineering or installation of systems. Examples include plumbing, electrical and HVAC. It is often used to fill the gaps left by a CGL policy.
What events do contractors insurance policies exclude?
Product liability exclusion
The goal of this exclusion is to delineate between problems caused by your company and problems caused by the engineering, design or manufacture of a product you use.
Terms vary by insurer. The strictest policies carry a blanket exclusion across all products used in a project, including those that have been custom built. More lenient policies may grant exemptions to the exclusion for custom products that you designed or were designed on your behalf for a specific project or client. It’s all in the wording, so take the time to review the policy details with your insurance professional.
Warranty exclusion
Most building contracts include a warranty or guarantee of services as expected. A warranty exclusion may lead to denial of a professional liability claim if the insurer asserts that you failed in your contractual obligations to your customer.
Faulty workmanship exclusion
Like the other two exclusions, the wording in your policy is important. How does your insurer define faulty workmanship? Does the definition include any error or problem with installation, up to and including failure to provide instructions and warnings? Or is it more narrowly stipulated?
In most cases, you’ll want to purchase a “faulty workmanship” endorsement for your professional liability policy. This can offer broader protection against such claims.
A blueprint for success
Think about the attention you give to each new build. You should apply the same level of attention when you select your policies and endorsements. It’s equally important to include precise wording in your customer and supplier contracts, clearly outlining responsibilities and scope of work.
Ask your Rathbun Insurance Account Manager to review your customer, supplier and subcontractor contracts. They can help your identify and fill any gaps so your interests are protected.
