ConstructionPro Week, Volume: 3 - Issue: 7 - 02/14/2014

Should Contractors Be Allowed to Insure Themselves Against Their Own Faulty Work?

By Bruce Jervis


Commercial general liability (CGL) insurance policies have been the source of much controversy in the construction industry. The policies insure against personal injury or property damage caused by an occurrence during the contractor’s performance of the work. But do the policies cover the work itself? Insurers certainly don’t intend them to. There is frequently an express exclusion to this effect.


There is another exclusion common in CGL insurance policies. There is no coverage for liability the contractor assumed under a contract or agreement. This exclusion was the subject of a recent decision by the Texas Supreme Court. A project owner sued a prime contractor for defective workmanship. The contractor demanded its CGL insurer defend the action and acknowledge insurance coverage. The insurer responded that the contractor had contractually assumed this liability because the Workmanship clause in the construction contract required the contractor to construct the project in a “good and workmanlike manner.”


The court ruled that the Workmanship clause did not expand the contractor’s common law obligation to exercise due care in the performance of the work. There had been no contractual assumption of liability. The exclusion in the CGL insurance policy did not apply.


Do you believe contractors should be allowed to insure themselves against their own defective workmanship? There is no question the insurers do not intend this result. Yet, the continuing stream of litigation regarding CGL coverage suggests the insurance industry is having a hard time getting this message across. I welcome your comments.



Attorneys have errors & omissions insurance which covers them for unintended defective "workmanship." Contractors should also be able to get such insurance, but as a separate policy; not under the terms of CGL insurance policies.
Posted by: Richard Nixon - Friday, February 14, 2014 10:05 AM

I have worked as a professional engineer (HVAC?Plumbing)in the consulting field for over 35 years and now in the contracting field for the past 10 years. I loved it as a design professional when a contractor would take it upon himself to change the design , equipment etc. That left me as a consultant off the hook for the preformance of the system since it was now his design intent. Now that I am on the contractors side I caution against changing the engineers design since he is responsble for the preformance of the system. In addition I also believe it is the contractors reqponsibility to turn over a completed system inaccordance with his expertise in constructing the various components. i do not believe the insurance companies should be held liable for the workmanship on a project since they have no control on the personnel the contractor assigns to a project. Therefore not all tradesman are equal. Some do excellent work and some come to get a pay check. Having seen this first hand I would never pay a claim for poor workmanship by a contractor since the GLC policy does not have any control on personnnel. This discussion could go on for a long time.
Posted by: Walt Mager - Friday, February 14, 2014 10:07 AM

I also have been in the contracting business for 46 years, this is my last, although I've said that before. I also do not believe that the insurance company should be responsible for a contractor's bad installation. I know not everyone has the work ethnic that the older generation had but when I completed a project. I could walk away saying " there is another project completed by a skilled craftsman" it didn't matter if we had a two man crew or 250 men on the job, when we were complete, we walked away knowing we had done our best. Today, from the architect to the engineer to the owner no one wants to take responsibility for their work. It's up to the contractor to make sure he has qualified personnel to install a quality job, it is harder to find trained installers if they haven't been through an apprentice program.
Posted by: Bud - Friday, February 14, 2014 10:48 AM

Underwriting performance and workmanship is a good thing. This idea lead us to the emerging demand to have insurance and underwrite products to assure remedy for performance and workmanship. The problem is that insurance products are limited and new risk assessment models incorporating performance are still emerging.

Referencing the "Better Buildings Challenge" initiative, started by the current administration, it is apparent that greater attention to performance contracting stipulating cost savings, and other benefits will become more common practice in the years ahead.

When contract work is scoped for the purpose of energy or water conservation and/or improvement on the indoor air quality what happens when the expected bargains are not obtained?

To deliver performance some additional work and documentation is needed. Engineering work, manual J or D studies, infiltration, utility analysis, building use, and benchmark reports should not be minimized. These reports both before and after final sign off of work delivered can become evidence to achieving the work performance objectives negotiated.

It is the contractor who does the work plan bringing assurance to specific performances of said plan forward that will rise above their competition and set a new bar in the market place.

Property owners are not often made aware that options for performance exists. As more and more become aware it will become the new norm. Any performance work can and needs to be secured with a means for remedy. Risk assessment and underwriting of the contract to remedy performance outcome deficiencies makes since.

With the retrofit market expanding there is a need to deliver care in building site assessments. Capturing and incorporating all the incremental utility data and considerations of intended outcomes with the scope of work facilities performance. Improved methods of project management and protocols help maintain the integrity of the work and performance outcomes.

This submission extends appreciates the need for expertise in understanding performance contract underwriting. Defining new methods, processes, and protocols that open up to new innovations in insurance underwriting, and protocols to secure remedies for under-performance and unintended consequences due to errors, poor workmanship, operational mistakes, and other events that impact a project becomes convenient and necessary.
Posted by: Brad Clifford - Friday, February 14, 2014 12:55 PM

Yes contractors should be able to insure themselves for faulty work but not with liability insurance. I think it should be an errors and emissions insurance. Almost all professions have it.

However, where does it end with insurance? I agree with Bud that it begins and ends with the labor force and skilled labor and something that is forgotten (or lost)...pride. I also would have to ask where is the building department's inspector in all of this? As a GC I believe there are checks and balances; subs "performing their duties" and inspectors verify and me verifying the inspectors. I also believe that I am the bottom line guy.

I am not for more regulation or more insurance, but we work in an often times hazardous environment; and the labor force can, at times, be as summed up by a Framer that told me a long time ago," It's not like we're a bunch of doctors and lawyers", so we all "gotta" be protected.
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Posted by: Skene - Monday, March 03, 2014 12:22 PM


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