Mistakes. We’re all prone to making them on occasion, even the most grizzled veterans among us.
If you’re in the construction business, that’s what a general liability insurance policy is for, to help us recover from our flubs, right?
Actually, not so much.
General liability policies are good when there’s physical damage or bodily injury. Say one of your worker’s cigarettes causes a fire or a hammer falls and hits an inspector in the head. GL policies are good for those sorts of events. But installing the wrong drywall or doing a poor job of laying down a new carpet are not occurrences that would trigger coverage under your GL policy.
In fact, general liability policies will more often than not include exclusions for damages or injuries that occur while the insured is in the midst of performing their work.
In other words, you screw up, you pay.
There is, however, help.
Contractors Faulty Workmanship coverage is available as an endorsement on your Contractors Professional Liability policy and will help you recover should your work somehow turn out to be defective.
To be clear, we’re not talking about work your customers might not be happy about. So long as you followed agreed-upon specs and performed the work properly, there’s no coverage. But Faulty Workmanship will help you in all kinds of other scenarios.
But let’s define “faulty work” first. Loosely speaking, the phrase can be defined as having performed any type of operation incorrectly. It might be something that’s installed, repaired, built, or maintained in a manner that falls below generally recognized standards of quality or fails to meet representations or warranties. Even failing to provide instructions or warnings can make it “faulty work.”
Take the drywall example. Imagine you’ve installed it throughout the new wing of a school. Sadly, it turns out you mistakenly ordered three-eighths-inch drywall rather than the half-inch drywall originally specified. The error was discovered and, of course, the wrong drywall removed. Who pays? Faulty Workmanship does.
Or say you installed pipe that cracked, failed and collapsed after it was backfilled. An inspection found that the pipe had defects prior to installation. The cost to remove and reinstall the sewer work was $75,000. Who pays? Again, Faulty Workmanship does.
Faulty Workmanship isn’t for everyone. In fact, carriers can be pretty selective about who they’ll sell it to. Electricians, plumbers, HVAC and mechanical contractors, interior finishers, masons, utility contractors and flooring contractors are the best fit for Faulty Workmanship coverage. Roofing, structural and environmental contractors may find it harder to secure.
By the way, it’s important to note that if you’ve subcontracted your work or shifted into a construction management role vs. doing the work yourself, any problems that crop up will more likely be covered by your Professional Liability policy, not Faulty Workmanship.
One more thing: there has been a good deal of litigation on whether GL policies should cover damage and injuries that arise out of defective construction. We know some courts have found that defective or faulty workmanship can constitute an “occurrence” under standard GL insurance policies. Others, however, have found otherwise.
Your best hedge? Making sure the Faulty Workmanship endorsement is part of your Professional Liability policy.
Michael Kline is a Vice President in CCIG’s Construction Practice. Reach him at Michael.Kline@thinkccig.com or at 720-212-2042.
CCIG is a Denver-area insurance, employee benefits and surety brokerage with clients nationwide. We do more than make sure you have the right policy. We help you manage your long-term cost of insurance with our risk and claims management expertise and a commitment to service excellence.
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