General contractors typically have commercial general liability policies (“CGLs”). (CGL policies are not the same as performance bonds, which might also be in place for a particular construction job.) In my experience, the key provisions of most CGL policies are identical or are substantially similar. In fact, one task of a consortium of insurance companies known as the Insurance Services Offices is to develop standardized CGL policy forms.
CGL policies are meant to cover damages for personal injuries and property damage caused by the general contractor or by its subcontractors. For example, if a worker drops a hammer on a passerby and causes personal injuries, a CGL policy will typically provide coverage. Similarly, if a wall collapses during construction and causes property damage to a third party, a CGL policy will typically provide coverage.
CGL policies do not provide coverage for the repair or replacement of defective work. For example, if a project owner sues a general contractor because the owner has had to incur the cost associated with repairing defective work of the contractor, a CGL policy will not provide coverage to the contractor. If, however, the defective work has caused damages other than the damages to repair or to replace the work, it is very likely that the contractor’s CGL policy might provide coverage to the contractor for those damages.
In 2007, the Supreme Court of Tennessee decided an important case involving defective construction work and a commercial general liability policy. Although the case involved a claim by the contractor that the insurance company which issued the CGL should have to provide a legal defense to it, the holdings in the case are still very much applicable to an insurance company’s obligation, not only to provide a defense, but also, to pay a claim.