Key Takeaways

  • General liability insurance for contractors covers third-party bodily injury, property damage, and advertising injury claims.
  • Common exclusions include auto liability, pollution, residential projects, completed operations, and subcontracted work.
  • Policies often require contractors to carry additional coverages for pollution, professional liability, or workers’ compensation.
  • Residential exclusions frequently apply to condos, apartments, or single-family homes, while commercial contractors may be unaffected.
  • Completed operations coverage is crucial since many claims arise after project completion.
  • Subcontracted work may be excluded unless the contractor ensures subs have adequate coverage.
  • Essential contract clauses—such as indemnification, scope, and risk allocation—affect how exclusions interact with liability insurance.
  • Additional coverages like builder’s risk, professional liability, and umbrella policies can fill coverage gaps.

Construction contract exclusions are necessary in many cases. Some of the more common exclusions that a contractor should consider include:

  • Indemnification
  • Vehicle liability
  • Watercraft or aircraft
  • Damage to the product
  • Hazardous materials
  • Design-build project elements
  • Pollutants

Auto Liability Exclusion

Auto liability coverage is typically an exclusion in a construction contract. OCIPs, or owner-controlled insurance programs, often omit auto liability coverage; therefore, the contractor must continue the coverage they already have lined up. Additionally, contractors should get written confirmation that they can exclude the cost of continuing the coverage from any credits the OCIP would normally demand the contractor to give the owner.

Why Contractors Need Separate Auto Liability Coverage

General liability insurance for contractors does not typically cover accidents involving vehicles used on the job. For example, if a contractor’s truck damages another vehicle at a construction site, the claim would fall under a separate commercial auto insurance policy, not the general liability policy. Because many construction contracts operate under an owner-controlled insurance program (OCIP), contractors must verify whether auto liability coverage is included or if they need to maintain their own. Failing to do so could leave significant exposure to vehicle-related claims.

Pollution Liability Exclusion

Another affected coverage is pollution liability. OCIPs usually do not ensure the contractor for pollution liability risks, including, but not limited to, any risk of disturbing pollutants or of them being released into the environment. If this coverage is excluded by the OCIP, the contractor will need to continue their own coverage for pollution liability or purchase additional coverage. This is especially important in situations where the construction contract has hold harmless and indemnification clauses.

Environmental and Hazardous Material Risks

Pollution liability exclusions are one of the most significant gaps in general liability insurance for contractors. Most policies exclude coverage for claims arising from asbestos, mold, or hazardous waste. Even routine construction activities—such as excavation or demolition—can disturb contaminants and trigger liability. Specialized pollution liability policies are often necessary, especially for contractors working on industrial or environmental projects. Without this coverage, contractors may be held personally responsible for cleanup costs and third-party lawsuits.

Residential Exclusion

There is a trend with even reputable insurance carriers that they are not fond of insuring residential contractors. Look through your policy, especially on the extra pages, to scan for any terms like “Excluded Operations,” or “Residential Exclusion.” Contractors who only take commercial work might not care whether that exclusion is in place or not. Just remember that insurance companies typically classify condos and apartments as residential.

The Impact of Residential Work Restrictions

Insurance carriers often restrict or exclude coverage for residential construction because of the higher frequency of defect claims. Apartments, condos, and townhomes typically fall under these exclusions. Contractors who primarily work in commercial projects may not be affected, but those expanding into residential work should carefully review their policies. If residential projects are excluded, contractors should seek endorsements or separate coverage to avoid uninsured risks.

Sales and Use Tax Exemption Categories

The majority of exclusions that are applicable to construction contracts center around services. Many sales and use tax exemptions can be categorized as sales that are:

  • Intended for resale by the purchaser
  • To government entities or non-profit agencies
  • Outside the seller's state
  • Qualified for exemption, like agriculture or manufacturing
  • Exempted due to their nature (food products)
  • Only occasional, capital contributions, or are part of a business reorganization.

Indemnification in Construction Contracts

Indemnification clauses can affect coverage in a number of areas:

  • Commercial general liability
  • Pollution liability
  • Workers' compensation
  • Aviation liability
  • Builders' risk
  • Watercraft liability
  • Umbrella coverage
  • Errors and omissions

Contractors need to verify which has the broader indemnification clause, the contract or the insurance coverage that is provided through OCIP. Some research might show that the indemnification clause holds the contractor liable for any losses the owner might sustain from:

  • Professional errors or omissions;
  • Environmental pollution;
  • Railroad exposures; or
  • Contractor's employment practices.

There is a risk of the contractor being held liable even though the OCIP excludes these types of risks. If the contractor has a broader duty to defend and indemnify the owner, then they should keep any broader coverage already purchased, or purchase the additional coverage.

An indemnification clause can be added to:

  • Construction Prime Contract
  • Construction Subcontracts
  • Instructions to Bidders/Request for Proposals
  • Insurance Manual

How Liability Exclusions Affect Indemnity Obligations

Construction contracts frequently require contractors to indemnify the project owner for losses, but insurance exclusions may limit the policy’s ability to respond. For instance, if indemnification extends to environmental hazards or professional errors, a general liability policy alone won’t cover those risks. Contractors should compare indemnity obligations with insurance exclusions to avoid unexpected gaps. In some cases, they may need to purchase supplemental coverages such as professional liability or contractors’ pollution liability insurance to satisfy contractual obligations.

Are Completed Operations Excluded?

Once the contractor leaves the job site, has completed a large portion of the work, or the completed project is now functioning in its intended purpose, a majority of policies will terminate coverage for the contractor. You are responsible when obtaining coverage to verify whether said coverage includes completed operations.

A number of reputable carriers have this coverage type as optional and agents must specifically request it before it will apply. Remember that the bulk of construction-related claims are derived from something that happened long after you completed the job.

Importance of Completed Operations Coverage

Completed operations coverage protects contractors after work is finished and turned over to the client. Many claims, such as foundation cracks or faulty wiring, arise years after completion. Because some policies exclude or limit this coverage, contractors must verify whether their policy includes it and for how long. Without completed operations coverage, contractors could face devastating out-of-pocket expenses for lawsuits well after the project’s end.

Is Subcontracted Work an Exclusion?

It's expected that subcontractors have their own insurance coverage. Your policy may provide coverage in the event the subcontractor's policy limits are exhausted or their carrier denies the claim, unless you have a policy that excludes subcontracted work. In some policies, it is hard to locate this exclusion. Sometimes, it's buried in a company's general liability policy. Other carriers list the exclusion in a numbered endorsement. This is important for general contractors to take note of.

Managing Subcontractor Insurance Requirements

General contractors often rely on subcontractors, but liability insurance policies may exclude subcontracted work unless specific conditions are met. For example, policies may require subcontractors to carry their own general liability insurance with equal or greater limits. If subcontractors fail to maintain coverage, the general contractor could be left unprotected. Best practice includes obtaining certificates of insurance from subcontractors and requiring them to list the general contractor as an additional insured.

Essential Clauses in a Construction Contract

Review your contract's definition of scope. It is not uncommon to find out that the scope is probably much broader than is spelled out in the proposal. Construction contracts often require a contractor to not only perform the work listed on the proposal but any other work that is also necessary or implied by the drawings presented. If your contract's definition of scope is in conflict with the proposal's scope, it could present a risk for potential disputes over scope-related change orders.

Additional Coverages Contractors Should Consider

General liability insurance for contractors is foundational but not sufficient on its own. Depending on the project, contractors may also need:

  • Workers’ Compensation Insurance – Covers employee injuries sustained on the job.
  • Professional Liability (Errors & Omissions) – Protects against design or professional service errors.
  • Builder’s Risk Insurance – Covers damage to buildings under construction from fire, theft, or weather.
  • Umbrella/Excess Liability Insurance – Provides additional coverage above policy limits.
  • Equipment and Tool Coverage – Protects owned and leased construction equipment.

By combining general liability insurance with these additional policies, contractors create a safety net that addresses the most common exclusions.

Frequently Asked Questions

  1. What does general liability insurance for contractors cover?
    It covers third-party claims for bodily injury, property damage, and advertising injury that occur during construction operations.
  2. Does general liability insurance cover employee injuries?
    No. Employee injuries are covered under workers’ compensation, not general liability insurance.
  3. Why are residential projects often excluded from coverage?
    Carriers consider residential projects riskier due to the higher frequency of defect and liability claims.
  4. What is completed operations coverage?
    It protects contractors against claims that arise after a project is finished, such as faulty work or hidden defects.
  5. Do subcontractors need their own insurance?
    Yes. Subcontractors are typically required to carry their own general liability insurance, and general contractors should verify coverage.

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