When you hire a contractor to perform work on your home or business, the contractor will often present a certificate of insurance coverage, assuring the customer that the contractor is insured and giving the impression that the customer could make a claim to that insurance company if something were to go wrong with the project. The insurance policy is known as a “commercial general liability” (“CGL”) policy. But does this policy provide coverage for the contractor’s faulty workmanship? Often, the answer is “no.”
The Colorado Court of Appeals recently ruled that a standard CGL policy only provides insurance coverage for bodily injury caused by the contractor’s work or property damage to something other than the insured’s work product. Accordingly, the general rule is that a CGL policy purchased by a contractor does not cover damage to the contractor’s work product. For example, if a contractor is hired to construct a $50,000.00 addition to a home, and a wall falls down and injures a resident, the CGL policy would provide coverage. However, if the contractor’s work is faulty and the addition needs substantial repair and reconstruction, it is likely that the CGL policy will not provide coverage for these losses.
A few of our clients have found themselves in a situation where a contractor’s work requires substantial and expensive repairs, yet the insurer denies coverage for the claim. Therefore, the only recourse was to pursue the contractor. Due to the state of the construction industry, many contractors have become insolvent, and instead of providing compensation for the damage the contractor will shut down the business and open a new company under a different name.
As a result, there is a greater burden on the person or business hiring the contractor to conduct research into the contractor’s background. Positive attributes of a contractor include: (1) the contractor has been in business for a substantial period of time; (2) the contractor is a member of an organization such as the Associated General Contractors of Colorado or American Subcontractors Association of Colorado; (3) the absence of complaints against the contractor with the Better Business Bureau; and (4) a positive recommendation from a friend or colleague based on past performance. Conducting this research prior to hiring the contractor will increase
the likelihood that the contractor you hire will deliver a quality product or provide an avenue for relief if you need to seek compensation.