Last week, I explained that insurance policies have exclusions to eliminate coverage for those things covered by other policies, for things that can’t or shouldn’t be insured and for things that are too costly to insure. Examples of typical exclusions include war, wear and tear, and pollution. Commercial General Liability (CGL) policies have exclusions for liability arising from autos, watercraft, aircraft and injuries to employees because there are policies that are designed to cover those exposures. Where more attention needs to be paid to exclusions is where the exclusions are specific to the nature of a business’ operations.
For example, a classification limitation exclusion on a CGL policy would limit the operations to only the declared operations. So if there was a classificaion limitation exclusion on your policy and you had declared operations as a janitorial service but you also do carpet cleaning at locations where you didn’t perform full service janitorial service, there is a real question as to whether you’d have coverage. Other exclusions to be concerned with on CGL policies include exclusions of specific operations, exclusions that apply to the work of subcontractors, and products exclusions.
For some operations the pollution exclusion can become very important. For example, if you’re using a large container of a particular chemical in your work and that container spills, you probably won’t be able to rely upon your CGL policy to cover it. Pollution coverage is available but it’s expensive and has large deductibles.
Some exclusions are standard on CGL policies but you still need to be aware of them. One example is what is known as the “work performed exclusion”. The work performed exclusion is designed to remove coverage if you damage property that you are working upon due to the work being performed incorrectly. Historically this has been viewed as a “business risk” and thus uninsurable. The thought process was that if people could insure “sloppy” workmanship, there would be a tendency to do sloppy work and have insurance cover the consequences. However, in recent years some insurers have been willing for an additional premium to provide some level of property damage for workmanship. Thus it is important to know whether your policy covers this exposure or not.
Another exclusion that some insurers place on CGL policies is for contractual liability. Standard Commercial General Liability policies typically cover liability of another for bodily injury and property damage to a third party assumed in a written contract. Such contracts are normal parts of business today and most business people enter into such contracts. So if your policy excludes this coverage it is important to know it.
Lastly, some exclusions can be “bought back” for an additional premium. If your CGL policy contains an exclusion for “contractual liability” you may be able to buy the coverage back for specific contracts.
Knowing what is and is not excluded from your insurance policies can help you to decide whether to buy excluded coverages back or decide to assume exposures which are excluded by your present insurance policies. It can also help you decide which policy to purchase, since some agents will initially offer you a lower cost policy full of these exclusions.