General Liability (GL) covers a contractor for property damage, personal or physical injury, and/or construction defects. The standard GL policy is what is called a full occurrence policy. Full occurrence means that the policy covers the work performed years after the work has been completed. Typically, no more than 10 years. Being covered years later is important because something like a cabinet installer who unknowingly drives a screw slightly into a water pipe without bursting it, might be liable years down the road when the rust finally causes the pipe to leak. The length of time your policy covers your work may differ by state and trade. A claims made policy is the other type of policy. It is cheaper than full occurrence because it only covers you during the year the policy is in force.
Watch out for these Gotcha’s: In order to keep the costs lower, some full occurrence policies have provisions inside them that reduce the coverage. For instance, a sunset clause might take your policy down from 10 years of coverage to 2, 3, or 5. Another one to watch out for is a policy with a manifestation clause. A manifestation clause will basically make your occurrence policy no better than a claims made policy. In other words, even though you have an occurrence policy, the manifestation clause eliminates the coverage past that first year.
Other things to consider when purchasing your GL:
- Do you want your policy to cover prior works
(work done before your policy became active)?
- Water damage? Many policies exclude that coverage
and water damage is one of the most common claims.
- Do you need an A.M. Best A rated carrier?
Some jobs require that rating.
- Additional Insured’s? Do you have clients who
require you to name them as Additional Insured?
- Do you need coverage for work performed on
GL is the most important policy for a contractor. There are many other factors to consider to make sure you are properly covered. The most important thing is to be clear with your agent about the type of work you do or might be doing.
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