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Know Your Coverage: Commercial General Liability Policies

Know Your Coverage: Commercial General Liability Policies

Commercial General Liability Policies Will Not Cover Everything

Did you know that the Commercial General Liability (CGL) Policies that contractors are required to carry by law do not generally cover the repair or replacement of the contractor’s own work?  Whether you are a contractor trying to make sure you are covered, a property owner looking to get some work done, or a subcontractor working on a project, it is important to know what the contractor’s insurance policies will and will not cover.

Commercial General Liability Covers Damage to Third Parties

In general, courts have consistently held that CGL policies are not bonds and are not usually issued to guarantee the quality of the insured’s work or product.  However, CGL policies do insure damage caused to third parties or property other than the insured’s work.  A common example is the roofing contractor. While the CGL policy issued to a roofing contractor may not cover damages to the actual construction of the roof, if as a result of defective work the roof leaks and causes damage to other portions of the building, the Policy will likely provide coverage for such damages.

For example, in Supreme Services and Specialty Co., Inc. v. Sonny Greer, Inc., 06-1827 (La. 5/22/07), 958 So. 2d 634, Supreme Services contracted with Greer to construct an oil field service facility, including pouring the concrete for the building’s foundation.  Greer made numerous repair attempts after the concrete slabs cracked, but the cracking continued to worsen.  Eventually, Supreme Services sued Greer for breach of contract and breach of warranty actions.  Greer, in turn, sought coverage from his CGL insurer. 

The Louisiana Supreme Court ultimately decided that Greer’s CGL policy did not cover the damage to the concrete caused by his own defective performance.  If Greer’s negligence had caused damage to other property or to other people, the liability policy would cover that, but not the concrete itself.

What Does This Mean for You?

Thus, regardless of whether it is a commercial or residential project, it is important to understand that although CGL policies do provide some protection, the CGL policy is not a bond and will not provide coverage for the replacement and the repair of defective work.  Your attorney can assist you, whether you are a contractor, a sub, or a property owner, to make sure that the transaction is properly structured and you have the most protection available if something goes wrong.

Allen & Gooch is providing this legal update for informational purposes only. This article should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. You should consult your own attorney concerning your particular situation and any specific legal questions you may have.