Understanding Exclusions in Your Contractor Insurance Policies

Waiting too long to learn what your insurance policy’s exclusions are can be frustrating at best and disastrous at worst.

Picture this:

You’re working on a new construction job when the whole roof caves in. Turns out you didn’t have the right support beams for the weight of the structure. You call your insurance company, only to find out your contractor insurance doesn’t cover faulty materials or design.

You’ve just discovered an exclusion- the hard way.

So, what is an exclusion?

An exclusion is a limitation or restriction of your insurance coverage. Your policy’s exclusions will be noted in your insurance contract.

Read your policy carefully and make sure you understand all exclusions before you purchase your insurance, so that you don’t find yourself without coverage when you need it most.

Read on to discover the common contractor insurance policy exclusions you’ll need to watch out for when reading your contract.

The Top Three Contractor Insurance Exclusions

Exclusions are a common, even necessary, part of the insurance business. Even your all-risk policies like inland marine or builders risk will have exclusions. There are some incidents that insurance companies simply can’t cover, whether it be because they’re high-risk or the damages would be astronomically expensive.

Because of this, there are a few common exclusions that are found in most policies.

The following examples are exclusions that will crop up in many of your contractor insurance policies, regardless of the type of coverage in question:

#1: Exclusions covered by another policy.

Every great insurance company’s goal is to provide you with the best coverage possible. That’s why many policies don't include incidents that are better covered by other policies.

For example, you commercial auto insurance won’t cover the tools you haul around in your truck, because the coverage offered by your inland marine policy is much more comprehensive and effective. Likewise, if an employee is injured on the job, general liability won’t cover it because your workers comp already does.

#2: Incidents that aren’t accidental.

This is typically written in insurance contracts as an “expected or intended damages exclusion.” Contractor insurance covers accidents. If something happens, and you knew that there would be damage and could have prevented it, or if damage was caused intentionally, then your contractor insurance wouldn’t cover it. This is why incidents like employee theft typically aren’t covered- because it’s intentional damage caused by an insured party.

#3: Catastrophic incidents.

Your contractors insurance is limited to accidents directly impacting you and the rest of the insured parties on your contract. It’s not intended for entire communities.

A single insurance company could never cover the damages from large-scale catastrophes, such as acts of war, terrorism, flood, or earthquake. Thus, catastrophic incidents may not be covered by your contractor insurance.

Policy-Specific Contractor Insurance Exclusions

Because each contractor insurance policy is intended to cover a different set of risks, each policy will include exclusions unique to that type of coverage.

That’s why it’s important to familiarize yourself with the exclusions for ALL of your policies, not just the common exclusions listed above.

The following exclusions are commonly associated with one specific contractor insurance policy:

#1: General Liability Insurance Exclusions

  • Contractual liability exclusion: Have you ever signed a job contract that included “hold harmless” language or an indemnity agreement? This agreement basically means that you assume liability for the other party in the contract. Your general liability policy may not cover an incident if you signed a contract saying you’ll take responsibility for it.
  • Damage to property exclusion: General liability insurance covers claims for damage involving third-parties. If you damage your own property, it typically isn’t covered.
  • Electronic data: Your general liability policy covers tangible property- this means it often excludes electronic data.
  • Professional liability exclusion: Your general liability insurance is intended to cover accidents only, so if an incident arises because of a professional error on your part, general liability may not cover it.

#2: Commercial Auto Insurance Exclusions

  • Mobile equipment: Your commercial auto insurance is intended for vehicles such as cars and trucks. An accident involving another vehicle, such as a forklift, probably won’t be covered by your auto policy.
  • Pollution: Many commercial auto policies exclude instances where pollutants lead to bodily injury or property damage.
  • Racing: Auto policies are intended to cover accidents, so incidents resulting from deliberately engaging in a dangerous activity like racing are often excluded.

#3: Workers’ Comp Exclusions

Workers compensation policies often exclude hazardous activities not common in most industries. These are referred to as “general exclusions” and include:

  • Aircraft operation
  • Foundry operations
  • Asbestos abatement

#4: Inland Marine Insurance Exclusions

  • Vehicle used for transportation: Inland marine insurance is intended to cover equipment and supplies in transportation. This doesn’t extend to the vehicle itself, however. Your vehicle is better covered by commercial auto.
  • Waterborne equipment: Despite the name, inland marine insurance is intended to cover goods transported over land. That means waterborne equipment, such as materials transported via barge, typically isn’t covered without the purchase of additional coverage. (Ironic, eh?)

#5: Builders Risk Exclusions

Builders risk insurance covers most accidents beyond your control, which means professional errors like the following are often excluded:

  • Defective or faulty workmanship
  • Defective design
  • Faulty materials

If you this article made you realize you need insurance for something that’s typically excluded, don’t worry.

Additional coverage may be purchased for many excluded situations, such as waterborne equipment, or disasters such as earthquakes and floods.

Most insurance policies have exclusions, which makes it absolutely vital that you read your policy thoroughly before agreeing to it. If there are any exclusions that concern you, talk to a qualified agent about your options. They can help you get the coverage you need at a great rate.