Contractor General Liability in a Bad Economy

Should a contractor let the policy expire to save money?

As a result of the recent housing slowdown, some home builders have put a hold on new construction activity.  They often struggle with the decision about whether or not to renew their General Liability insurance in order to save money.

I recently counseled a client on this issue and advised him to consider the adverse consequences before allowing his General Liability policy to expire. Most contractors mistakenly believe that their General Liability policy will respond to a lawsuit as long as the policy was in force during the construction (when the alleged negligent act occurred). This is a reasonable assumption, but the General Liability policy language says different in its “occurrence-based trigger.”

Here’s the catch

In order for coverage under a General Liability policy to be triggered, the bodily injury or property damage must occur while the policy is in force. The problem with not renewing a policy is that there will be no coverage for any bodily injury or property damage that occurs after the policy is no longer in force.

As a result, a home builder would have no General Liability coverage in the event that any of the following scenarios occur after the non renewal:

• Fire damage caused by faulty wiring destroys a house, the contents and injures an occupant.
• A disappearing staircase that was not properly bolted collapses, resulting in a broken hip to home owner.
• Gradual water intrusion due to faulty flashing continues to damage sheathing and two-by-fours under siding.

After bringing these potential problems to the attention of our client, he decided he didn’t want to face these uninsured risks and renewed his General Liability policy.