Contractors face significant risks daily and expect their insurance policies to pay for claims when something bad happens. However, claims are covered only when the policy specifically grants coverage. Underwriters often add exclusions to policies that limit coverage for the most likely claims that would be covered by the policy. McConkey ensures clients have proper coverage in place by reviewing each quote in detail, including endorsements, and then reviewing the policy to make sure it matches what was quoted.
McConkey recently reviewed an excess policy for a prospective client that contained 3 common exclusions, none of which should have been part of this company’s insurance program.
1. Residential Exclusion:
- The Issue: Residential exclusions are very common because some insurance companies are concerned with class-action construction defect claims. This contractor performed site, utility, and paving work for residential developments, but it was only a small percentage of their work. Unfortunately, there was a broad residential exclusion that applied to all work “in connection with” any residential project, including single- and multi-family homes, apartments, and even senior living facilities. This exclusion applied to bodily injury and property damage, meaning there would have been no coverage under this policy for anything that happened on a “residential project.”
2. XCU Exclusion:
- The Issue: XCU exclusions limit coverage for claims arising from “explosion, collapse, and underground” hazards. While this exclusion is limited to property damage, it is concerning for any contractor performing site work or building any structures, including bridges or overpasses. Because of this exclusion, there is no coverage under the policy for any damage that occurs from any explosion, resulting from any demolition, any collapse or other damage to a structure, or damage to underground property or the resulting property damage. These exposures are present on every job this contractor undertakes, and this exclusion creates a significant risk of uninsured claims.
3. Subsidence Exclusion:
- The Issue: While this may not appear too concerning at first thought, this exclusion applies to any bodily injury or property damage that results from any “earth movement.” This would include any sinkhole, erosion, and any, “expansion, shifting, sinking, or settling of land.” For some contractors this endorsement might be acceptable, but for any civil contractor performing utility, excavation, or other infrastructure work, this creates a major coverage gap and should never be accepted.
Not only do these exclusions create significant coverage concerns, but they also put this contractor out of compliance with their contracts because these exclusions are often referenced in contracts as not being allowed on any liability policies. McConkey was able to find coverage with an insurance company that specializes in coverage for construction companies for virtually the same amount of premium.
Some agents and brokers often make recommendations based on which carrier provides the policy at the cheapest price. When decisions are made in this manner, important aspects of the coverage can be overlooked. Most construction companies rely on their insurance agent or broker to review the policy language to ensure the coverage is appropriate, and rightfully so. Unfortunately, many insurance agents and brokers don’t thoroughly review every endorsement or may misinterpret complex policy wording. Some don’t have the experience or expertise to know what to look for. This is why it’s important for contractors to partner with an agent or broker experienced in managing complex insurance programs for contractors.
Please reach out to a member of the McConkey team if you’re interested in a detailed policy review.