Beware of Coverage Gap in Contractors' CGL Policies
09/06/2014 | Fall 2014 NewsletterLately some insurers have been writing contractor commercial general liability insurance policies with an exclusion for claims arising out of bodily injuries to the contractor’s own employees occurring while employed on a construction site. Owners, when writing a construction contract, should require that the contractor furnish proof that the contractor’s CGL policy provides coverage for such claims.
A construction owner routinely requires its contractor to obtain Commercial General Liability (“CGL ”) insurance naming the owner as an “additional insured.” The term “additional insured” means that the owner enjoys the same protection as the contractor. The protection provided depends upon the interaction between the CGL policy’s coverage and the policy ’s exclusions.
Lately, some insurers have been writing contractor CGL policies with an exclusion for claims arising out of bodily injuries to the contractor’s own employees occurring while employed on a construction site. Since the contractor then has no coverage under the CGL policy for claims arising out of bodily injuries to his own employees, there is no coverage for the owner as an “additional insured” in a suit for bodily injuries initiated by the contractor’s employees. However, under the exclusion’s language, if a subcontractor’s employee suffers bodily injuries on the construction site and sues the owner, there is coverage for the owner as an “additional insured” because the exclusion only applies to the contractor’s own employees, not its subcontractor’s employees.
In a 1996 reform measure, the New York Legislature provided that an employer properly maintaining workers compensation insurance covering personal injuries for an employee while performing the employer’s work did not have to contribute when the injured employee sued someone else for the personal injuries suffered. By providing workers compen-sation insurance, the employer was shielded from liability. This reduced workers compensation insurance premiums. The employer could still be liable when it agreed contractually to indemnify someone else; the employer often had coverage for the indemnification under the contractual liability coverage provisions of its own CGL policy. The employer’s CGL insurer provided coverage when the someone else sued was an “additional insured.”
The CGL policy exclusion’s language changes this. There is neither coverage for the contractor for the agreed upon indemnification nor “additional insured” coverage for the owner.
This has widespread consequences. Payment from the owner’s CGL policy to an injured contractor’s employee will reduce the monies available for other potential claims; umbrella and excess insurers must therefore be notified of accidents and claims because CGL policy limits are more likely to be exhausted. Contractor renewal and replacement policies must be monitored. Architects and engineers carry CGL coverage for nonprofessional liability and sometimes name the owner as an “additional insured.” The owner may not have contractual indemnity coverage under the owner’s CGL policy for its own employee’s claims against persons named as an “additional insured” in its own CGL policy.
An owner, when writing a construction contract, must require that the contractor furnish proof that the contractor’s CGL policy provides coverage for claims arising out of bodily injury to the contractor’s own employees. A typical certificate of insurance is silent. Only a careful review of the CGL policy will resolve the issue.
About the author: Eugene H. Goldberg is an associate at Gallet Dreyer & Berkey LLP. He handles complex litigation involving construction matters, insurance coverage, professional malpractice claims involving architects and engineers, surety bond claims, and general liability claims. He also drafts and negotiates contracts relating to the construction industry. Mr. Goldberg has published numerous articles in legal journals, and is the former editor of the New York State Bar Association Construction and Surety Division Newsletter. Mr. Goldberg can be reached at ehg@gdblaw.com.