Construction contractors typically secure commercial general liability (CGL) insurance policies and assume that these policies address all of their risks. However, these CGL policies may not always apply or cover all risk scenarios that a contractor may face in a construction project. In fact, there are a variety of instances in which CGL policies may not provide the protection contemplated by a contractor. Let's discuss a few.

Consider a catastrophic structural failure during construction that kills several and seriously injures multiple other workers. No surprise, a lawsuit is filed for property damages and bodily injury against the owner, general contractor, and subcontractors on both the build and design sides of the project. Assume that the contractor has a CGL policy providing $10 million in coverage, and that the project is covered by $30 million under an owner-controlled insurance policy (OCIP).

Our hypothetical contractor may assume that he has coverage in the amount of $40 million. Let's examine that assumption:

Most CGL polices have a variety of exclusions. One common exclusion disclaims any coverage when the insured (here, the contractor) is working on a project covered by a separate owner-controlled policy. This increasingly common exclusion does not mean that the owner's policy provides a defense and pays indemnity until exhausted, after which the hypothetical contractor's CGL policy kicks in. Rather, it means that, the CGL policy is never triggered, regardless of what happens under the owner's policy. It's as if the CGL policy doesn't exist. This is not a pleasant scenario, especially when the monies available under the OCIP have already been expended for the benefit of several sued entities but the case is not entirely resolved.

Another coverage issue for contractors to consider is one that arises even when there is no owner's policy exclusion in the CGL. For example, the CGL policy may be structured in such a way that incurred defense costs will erode the available policy limits; this is sometimes referred to as a "wasting" policy. For example, the CGL policy might provide $10 million in coverage, but the insurer ends up paying $3 million to defend the case. That would leave the contractor with $7 million in coverage to settle the case or satisfy a judgment, exposing the company to liability for any excess amounts. This is another unfortunate outcome, especially if the contractor didn't understand this risk from the start.