For a construction contractor, receiving notice of a claim for damages associated with the contractor's work can be a daunting prospect. Particularly if the contractor's first notice of the claim is a lawsuit naming the contractor as a defendant. Fortunately, most contractors do (and all contractors should) maintain commercial general liability (CGL) insurance to cover claims for damages or injuries related to the contractor's work. CGL insurance (typically) covers allegations of damage because of defective work, defending the insured against potentially covered claims and settling covered claims. Of course, many factors can affect this basic coverage analysis. For example—what happens when bodily injury or property damage occurs after the policy in place while the contractor did its work expires?
Many contractors maintain CGL insurance on an ongoing basis, renewing or replacing each policy as it expires with a new policy. Over time, a contractor may have had multiple different CGL polices in place, through multiple different insurance companies. When faced with a claim involving allegations of defective work or other liability, contractors often notify only the CGL policy in force as of the date of the alleged wrongful act. Often, especially if the claim arises while the work is still ongoing, this common-sense approach is enough. The insurance carrier acknowledges the claim, appoints defense counsel, and tries to settle the claim against the insured contractor. But sometimes—to many contractors' surprise—the CGL carrier instead denies coverage for the claim.
Counter-intuitively, the CGL insurance policy in place when a contractor does its work is not necessarily the policy that covers bodily injury or property damage because of that work. This is because one of the conditions of coverage under a typical CGL policy is that "[t]he 'bodily injury' or 'property damage' occurs during the policy period ...." What that means is that property damage or bodily injury is normally covered by the CGL policy in effect when the damage or injury occurs, not the policy in effect when the underlying work was performed.
By way of example, suppose an insured contractor worked on a construction project in 2018. A lawsuit against the contractor alleges property damage resulting from the contractor's work occurred in 2021. The contractor's 2021 CGL policy may cover the claims against the contractor, rather than the 2018 policy. In cases of ongoing damage or injury, or where no date is specified, coverage might be available under multiple policy years.
The insurance policy in force when a contractor's work was performed is not the only policy that contractor should consider when seeking coverage. Instead, contractors should consider whether coverage may be available under another CGL policy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.