When advising a client in the construction industry, it is clear that the client will need to purchase some kind of liability policy, as there is great potential for causing damage to third party property. But what kind of policy is correct?
Would a Commerical General Liability (CGL) policy with the Contractors Liability extension, or a Contractor’s All Risk (CAR) policy be the better option?
To start off, it is worth mentioning that there may appear to be an overlap between a CGL policy and a CAR policy in that both might cover damage to the principal’s property (the principal being the contractor’s client). This is why it is worth elaborating on what each of these policies would cover.
The CGL policy provides for damage to third party property. When the Insured is working at a client’s premises, that client would normally be a third party. The CAR policy also provides cover for damage done during the construction process and that cover would typically extend to provide cover for surrounding property (which could include that part of the client’s property which is not being worked on).
It is important to note that both policies normally exclude damage arising from the work to the actual part being worked on. This is a trade risk and is therefore not something which underwriters would look to insure. Further, both policies will only cover third party damage.
Where construction is done on an existing structure, the insurance is invariably arranged by the contractor’s client (the principal). Where the construction is part of a new project, the insurance could be arranged by either the principal or the contractor. If the liability cover is principal controlled, then there would be no cover for damage to the principal’s property as this would be an own damage claim (i.e.the principal is not liable to a third party).
By way of example, if the Insured is a painter working on a customer’s roof, neither the CGL nor the CAR policy would cover damage to the roof arising from the paint work being done. If, however, the painter loaded all of his equipment onto the customer’s skylight (part not worked on) causing it to crack, both policies could cover the broken skylight, but neither would cover the damage to the painter’s own equipment.
One of the biggest differences between these policies is that a CAR policy is often project specific while a CGL policy could cover the Insured for all work done during the annual policy period. If liability arises in terms of a specific project, it might be excluded by theCGL policy since the CAR policy would be the more specific insurance.
Most, if not all, insureds will need a CGL policy, those in the construction industry might, in addition, need a CAR policy.
If you would like to discuss this further, please feel free to contact us at Camargue.