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Close the Costly Subcontractor Loophole In Your CGL Insurance Policy

If your Commercial General Liability (CGL) insurance agent hasn't asked to see a copy of your written subcontractor agreement, you probably have inadequate insurance protection for your construction or remodeling business.

The typical CGL insurance policy for contractors contains a "my work" exclusion. That means it covers incidental or consequential damage arising from the contractor's bad construction, but it won't pay to fix the bad construction. Because the work of a subcontractor is considered an extension of the general's work, the sub's faulty construction is excluded from the general's policy coverage, too. General contractors with the wrong insurance coverage, especially paper contractors (subcontracting most or all of the construction work), risk paying the cost out of pocket to rebuild any of the work their subcontractors got wrong.

Here's an example: Your roofing subcontractor reverse laps the underlayment on a shingle roof and snow melt leaks through the roof and soaks the framing, attic insulation and sheetrock below. Your CGL insurance should pay to repair or replace the insulation, framing and sheetrock, but not the roof itself. You are on the hook for the cost to replace the roof.

For superior protection, ask your insurance agent for an endorsement that exempts the work of your subcontractors from the "my work" exclusion on your policy. The endorsement will cost a little more, but it may be the most important protection you have. And be sure to get a signed, written agreement before hiring any subcontractor.

If your insurance agent never asked to see your written subcontractor agreement, I guarantee you are vulnerable under the "my work" exclusion. Since the insurance carrier isn't liable for your subcontractors' work, it doesn't care if you have a proper agreement. But you should.

Contact Minnesota Construction Law Services to review your contracts and ensure that you are protected. We're here to help your business grow and manage risk.

P.S. Thank you to all of you who contacted your state legislators and members of the Senate Judiciary Committee to oppose SF 104. The bill would have given homeowners a cause of action against home improvement contractors for legal expenses in warranty claims. The committee tabled the bill.

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