Insurance can be confusing. Even the most seasoned insurance professionals have to work hard to stay informed and ‘in-the-know’. So it’s no wonder that so many Contractors and Business Owners are confused about what they are and are not covered for, under a General Liability policy.
Here are the Top 5 Misconceptions I come across often:
- General Liability DOES NOT cover your stuff or your people. General Liability comes into play when someone else is injured (either physically or their stuff is harmed). You purchase the liability insurance to protect you, should a third-party file a claim against you – for injury that you or your work, may have caused. Coverage for YOUR stuff falls under other forms of insurance such as a BOP, Inland Marine or Workers Comp (injury to your employees).
- General Liability DOES NOT cover faulty workmanship. This is a big one. Many people think it does. No, liability covers any subsequent damage your work may have caused. So, if you’re a plumber and a pipe you put in bursts, the pipe work is not covered – only the water damage that is caused, is covered. If you want this to be covered, you will need to have Contractors E&O insurance.
- It is impossible to guarantee that your insurance will pay a claim made against you. Insurance carriers have a duty to defend and pay out - only insofar as the policy form actually covers the damages. Anyone can file a claim against you for any reason. If the claim is outside of what the policy covers, the carrier will not accept it. Therefore, you should always have an outside council you can call on to represent you – just in case.
- A Bond is not a replacement for General Liability. I have had a number of Contractors tell me that they do not need insurance because they have a Bond in place. These are 2 completely separate products and have no cross-over coverage. A Surety Bond is a form of guarantee that you will perform to a certain standard. I like to think of it as a Bond company is hedging your integrity. They back you for a certain amount of money and charge you a fee.
- Additionally Insured certificates need to have both an Endorsement AND a Contract in place to be legally valid. Listing other companies to your Liability policy (or vice-versa) by AI Endorsement will only be legally binding if a physical Contract is in place between you both. There may be some exceptions to this rule but error on the safe side and make sure you have a Contract in place. There have been many court rulings on this recently and sadly, many companies have been on the losing side.
This is just the tip of the iceberg. Make sure you ask the right questions to your Broker/Agent and read through your Insurance policy. I know it is not fun reading but it is hugely important.
I am available if you want to learn more or have any questions.