What does General Liability cover and what is excluded?

19 Replies

Disclosure: I represent Affinity Loss Prevention Services, the chosen loss prevention partner of NREIG/AGM

This question and a few items came up in another thread and warranted further discussion.

@Gautam Venkatesan @Darish D. @Sara Nobles @Juliana Shipp

The questions were:

1. What does General Liability cover and what is excluded?

2. How is Lloyd's of London rated?

#1 About General Liability coverage: When we speak of liability coverage on an investment property the concerning exposure is premises liability. Think slips-and-falls for example. As there are other types of commercial liability coverage (workman's comp is an example you may recognize the name of), let's just be clear on which type of liability we are addressing below... 

General Liability coverage is pretty simple and usually has the following categories:

a. Per Occurrence Limit - The maximum payout for any one occurrence (usually $1,000,000). Bear in mind, legal expenses that are incurred due to such a claim do not diminish this limit.

b. General Aggregate - The total limit for the policy period. Typically twice the occurrence limit.

c. Products/Completed Operations - For completed work on the property - usually a contractors liability policy will have this coverage. Accordingly, it is excluded in many policies out there for an investor.

d. Personal/Advertising Injury (For acts of false advertising/slander. That would be if you were harming someone else through your business methods. This may be excluded for premises liability as it could be picked up on a Commercial General Liability policy that a landlord/PM might obtain to protect themselves in business activities...to protect from wrongful evictions, etc.)

e. Damage to Premises Rented to You - Doesn't usually apply for investors as this has to do with space rented to you...such as any fire damage you cause to an offsite office you rent.

f. Medical Payments - Coverage for medical bills as a result of an injury occurring on the insured premises, without consideration for negligence. Many times an insurer will use this coverage as a "good faith" payment to help avoid litigation. This is exclusive of the per occurrence limit above, so don't fret if you do not have this limit in your coverage, or have a minimal amount such as $5,000 or $10,000.

g. Deductible - Your out-of-pocket cost if you are liable for damages to another party's property or for bodily injury.

Sample limits for many policies that cover residential real estate are:

a. $1 Million

b. $2 Million

c. Excluded - See explanation above. For real estate, there is no "product", and the "completed operations" of a third-party such as a contractor typically fall under their coverage. Accordingly, you should always secure valid evidence of insurance from all contractors that work on the premises.

d. Excluded - Typically not an exposure for an investment location

e. $50,000 (or Excluded)

f. $5,000

g. $1,000 (or could be $2500 maybe)

A couple of other important notes...

Liability typically will not cover:

1. Any contractors working on a property (they should have their own coverage for their workmanship and/or workman's comp)

2. Anyone else hired by you to do work on the property (i.e. don't hire your friend's kid to do work on the property as you are opening yourself up to risk)

3. Injuries from animals (i.e. certain dog breeds, amphibians, & insects to name a few). It is best to take a look at policy specifics as this exclusion can vary quite a bit. Carefully consider if you will allow tenants to have pets and what kinds, if any.

4. Trampolines or other play equipment that could be seen as an "attractive nuisance".

5. If you have a pool at your property there may be strict guidelines that must be followed. Many policies require that you adhere to municipal guidelines and may have specific instructions for signage, maintaining safety equipment on the premises (life preservers, flotation ropes, etc.), and could even require the pool be fenced or a certified lifeguard be present when the pool is open. 

6. Total pollution exclusion - many policies have this exclusion and it can become an issue if there are injures due to Carbon Monoxide.

Premises liability coverage is important even though liability claims are more rare than property damage. They often are more costly and could take you out of business if someone is hurt as a result of your negligence. The cost of this coverage is pretty low, as you can usually get $1 Million per Occurrence/$2 Million Aggregate for $100/year/unit if you have a company that is also providing the property coverage...

#2 Lloyd's of London's Rating

(I know that you can all Google search quite effectively, but thought that bringing this info. to one centralized location might help...)

Lloyd's of London has a long-standing history as a pioneer of the insurance industry. There are different syndicates, or groups, within Lloyd's, but as they are all backed by Lloyd's Central Fund, they all have the same unified ratings.

a. History: If you would like to know more, I would suggest looking at their site:

https://www.lloyds.com/lloyds/about-us/history which can give insight into their 325-year-old history... 1688... Lloyd's has been around longer than the U.S. has been a republic.

b. Stability: There are a few recognizable rating agencies and Lloyd's displays their ratings here:

https://www.lloyds.com/lloyds/about-us/what-we-do/...

Standard and Poor's: A+ (Strong) - www.standardandpoors.com

Fitch Ratings: AA- (Very Strong) - www.fitchratings.com

A.M. Best: A (Excellent) - www.ambest.com

Cheers, BreAnn

Wow - thanks for all that info but can you please reply to my post on the other thread?

I'm not asking you to research the insurance industry at large, just your own business. Certainly, you must know what percentage of claims processed by you and your carriers for your own customers are approved or denied, right? Yes, I understand the word 'reasonable' is a matter of interpretation and this is why we have a court system so you can disregard the word and just tell us how many of the claims made are approved and how many of the claims made are denied. Please answer the question, thank you. 

Thank you BreAnn  for doing this: A few questions (all related to fix and flips and assuming no negligence on my end and that everything was done legally and in good faith):

1) Does Affinity offer a builder's coverage as well? I know my general contractors have their own coverage, but suppose I hired a handyman to install some doors and he accidentally hurt himself using his nail gun or something similar. Suppose he is not my employee and is working under $500 which is our limit in California for non-licensed work. Would he be covered? 

2) Suppose some children decide to jump into the backyard of a fully finished pool and go swimming (without my permission of course)  and God forbid something bad happens. Would the liability cover that? 

3) Suppose one of my Licensed contractors is dishonest about the fact that he has an insurance policy or hires employees for labor without paying for workman's comp and something happens to them. Is the onus on me to have verified his insurance policy or will the general liability cover me? 

4) Finally, suppose one of these handymen I hire messes up resulting in damage to the house itself. Such as smoking and leaving a cigarette out which burns the house or some unfortunate accident. Will the General liability under ordinary circumstances cover that?

I suppose for each of these scenarios, an insurer who doesn't want to pay out could come up with some fine print exception to deny each claim and that is the concern here.  Without giving details of individual cases, do you see successful claims for such incidents? 

I actually agree 90%, but disagree on no exposure to personal/advertising injury. 

Personal injury is where the torts of illegal entry or illegal eviction would be covered. 

Also one more add on. CCC exclusion. A liabiltiy policy never covers property damage to property in you care, custody, or control. That's a huge one. 

Otherwise, great summary of a 50 page policy into a few paragraphs. 

Originally posted by @Jason Hartman :

Wow - thanks for all that info but can you please reply to my post on the other thread?

I'm not asking you to research the insurance industry at large, just your own business. Certainly, you must know what percentage of claims processed by you and your carriers for your own customers are approved or denied, right? Yes, I understand the word 'reasonable' is a matter of interpretation and this is why we have a court system so you can disregard the word and just tell us how many of the claims made are approved and how many of the claims made are denied. Please answer the question, thank you. 

 Hi Jason, I believe that you should have received a direct answer to your question from Sara now.  Please let us know if you didn't receive it, thanks!

@BreAnn Stephenson - I got some very basic information from Sara; however, it doesn't tell the story because it only shows claims made but not the amount paid in relation to the claim. For example, it would be easy to say that your company/carrier paid a claim when you paid $1 but the claim was for $25,000. You would call that a claim paid but to the insured would definitely not consider it paid. The insured would call it insurance bad faith. 

I'll be happy to look at any information Sara sends me and replied to her asking for details but haven't heard back.

Originally posted by @Jason Hartman :

@BreAnn Stephenson - I got some very basic information from Sara; however, it doesn't tell the story because it only shows claims made but not the amount paid in relation to the claim. For example, it would be easy to say that your company/carrier paid a claim when you paid $1 but the claim was for $25,000. You would call that a claim paid but to the insured would definitely not consider it paid. The insured would call it insurance bad faith. 

I'll be happy to look at any information Sara sends me and replied to her asking for details but haven't heard back.

I understand your additional questions here Jason. I would suggest giving her ample time to respond as it does take quite a bit of time to pull the data together. The purpose of this thread was to start a separate discussion on some of the other coverage-related questions in the original thread so I will be happy to continue answering those here. I just wanted to make sure that you had at least received her correspondence.

Originally posted by @Darish D.:

Thank you BreAnn for doing this: A few questions (all related to fix and flips and assuming no negligence on my end and that everything was done legally and in good faith):

1) Does Affinity offer a builder's coverage as well? I know my general contractors have their own coverage, but suppose I hired a handyman to install some doors and he accidentally hurt himself using his nail gun or something similar. Suppose he is not my employee and is working under $500 which is our limit in California for non-licensed work. Would he be covered?

Hi Darish, these are all great questions and as they all require a substantial answer, I will tackle them one at a time... so, let's start with #1...

NREIG does insure properties that are under renovation. That stated, the above could become a Workmans Comp exposure for you. The most important consideration is to understand that how you compensate your labor may or may not excuse you from carrying WC coverage on them. In effect, just because you pay them on a 1099/independent contractor basis, doesn't mean that the courts or WC commission will agree. Be sure you understand (seek legal advice) on what constitutes an "independent contractor" relationship. You may find that it is different from your expectation and the definition and ramifications vary from state to state. Be wary not to create an unintentional employer-employee relationship, which would create a WC exposure for your business. 

That stated, the ISO form (a standardized format that many/most policies are written on in the industry) excludes "hired workers" so anyone hired by you, whether it be a GC or a handyman needs to be properly insured on their end. The worker hired for under $500, though he may be an independent contractor, is still being compensated by you for the work being done, and though not your employee, is a "hired worker". Coverage for his injures on the job or his faulty workmanship would be excluded under ANY premises liability policy.

Understanding that the relationship between you/your business and those that provide labor and services is not simply a by-product of how you compensate them is the first step in making sure your real estate (and any other business) is protected appropriately from WC and GL exposures. Securing and confirming coverages is a must when dealing with any and all contractors and service providers. Unfortunately, in today's litigious society, the risk of using uninsured "spot labor" far outweighs any short-time or financial benefit. If you are currently using and satisfied with such labor, review with your legal and accounting advisors and consider securing coverage for them, in the most appropriate and efficient manner they/you decide. Liability exposures of these kinds can easily put you out of business.

Originally posted by @Darish D. :

2) Suppose some children decide to jump into the backyard of a fully finished pool and go swimming (without my permission of course)  and God forbid something bad happens. Would the liability cover that? 

#2...

With pools it is important that you abide by any municipal guidelines for safety, which could include signage "No lifeguard on duty - swim at your own risk", and the like. In addition, your coverage may also require that certain precautions be taken, such as fencing the pool with a self-locking gate, providing and maintaining safety equipment on the premises such as life preservers, flotation ropes, etc. If your coverage allows for pools then there should be coverage available as long as you abide by the guidelines stated therein.

Originally posted by @Darish D. :

3) Suppose one of my Licensed contractors is dishonest about the fact that he has an insurance policy or hires employees for labor without paying for workman's comp and something happens to them. Is the onus on me to have verified his insurance policy or will the general liability cover me? 

#3... 

The General Liability will not cover you in this case as again, these are "hired workers" and excluded from coverage. For this very reason, before hiring anyone, it is advisable to request a current copy of both their General Liability and, if applicable, Workman's Comp certificates. A good way to do this is to make it a part of the bidding process on any project. Requiring them to submit a copy of their insurance coverage with the estimate will save both of you time in the long run. In addition to that, I would also advise getting yourself/company named as a certificate holder, or even additional insured so that you would be notified in the event the policy were to lapse or cancel.

Originally posted by @Darish D. :

4) Finally, suppose one of these handymen I hire messes up resulting in damage to the house itself. Such as smoking and leaving a cigarette out which burns the house or some unfortunate accident. Will the General liability under ordinary circumstances cover that?

#4...

Yes, negligent acts of the handyman/contractor would be covered under his/her General Liability policy. Another reason to verify their coverage as per #3 above. If they do not have liability coverage, your property coverage may pay for the damages if the type of damage is a covered cause of loss within the policy. For example, the Fire peril is included in any property policy so you could still lean on your coverage even if they did not carry their own liability coverage. In another case, if your handyman breaks a pipe causing water to destroy the kitchen hardwoods, and your policy excluded Water Damage, you would be solely reliant upon his coverage, if any, to pay for the damages. The same is true if their negligence causes an injury on the jobsite. You would want to make sure that they had the appropriate coverage in place, which could include a GL and possibly WC coverage as discussed above.

Originally posted by @Darish D. :

I suppose for each of these scenarios, an insurer who doesn't want to pay out could come up with some fine print exception to deny each claim and that is the concern here.  Without giving details of individual cases, do you see successful claims for such incidents? 

Lastly...

Though I'm not intimately involved in the claims process in my role, I can say that we do see successful resolutions to these types of claims. In fact, a recent claim involved a contractor whose carelessness resulted in the investor's property burning down. 

As property coverage is 1st party coverage (i.e. directly protecting the insured) and acts as primary here, the investor's carrier paid the claim as Fire was a covered peril under the policy. To Jason's prior point, I am aware that the carrier appropriately paid the limit of the policy and not simply a percentage as it was a total loss. (A "total loss" in insurance constitutes the damage being equal to or greater than the policy limit and is not related to the percentage of the building still standing... or in this case, not standing.)

That stated, if the contractor has his own GL coverage, the property carrier may opt to subrogate against the contractor's GL carrier to recoup part or all of the funds paid out. The contractor's GL coverage is "third party" coverage that protects the contractor's client, in this case the investor, from damages caused by the contractor. Subrogation is a very standard process in the industry and would be appropriate considering that it was in fact, the contractor who was responsible for the loss in this case.

I hope that this helps and have a great afternoon!

-BreAnn

It's really bothersome that you started this new thread to divert the conversation away from the topic of unpaid claims

@BreAnn Stephenson thanks for starting this thread and sharing your knowledge. The more I read your posts the more I cringe at all the money I spend on insurance coverage. It feels like money flushed down the drain because the carrier holds all the marbles. I am not pointing fingers at you just stating what many investors probably feel. Please continue to post.

Glad to be of help Gautam!

Yes, it is a common feeling about insurance in general I know. I'm pretty sure that there is not one person in this country who has purchased insurance that hasn't experienced some sort of frustration at one time or another... insurance agents included. The thing I discovered about insurance and continue to see is that most people are not very well-informed about their coverages... which is most often what creates the most grief when someone finally does experience a loss. In our busyness we skip through reading things, rush to get coverage in place because, darn it, after all the other parts of the deal, I forgot the dang insurance and can't close without it today... It's only when we need to use what we've purchased that we start educating ourselves about it...and usually very frantically...

Also, many are unaware that insurance is a contract between the insured and the carrier and so, the carrier not only has responsibilities to carry out what is written in that contract, but so does the insured. I'm not quite sure where all the insurance myths out there come from, but in order to understand the function and true purpose of insurance, we have to undo what we were either wrongly taught or have wrongly assumed... 

I hope that I can bridge some of those gaps and dispell some of those myths here... 

Have a great weekend!

You have provided a wealth of information that is useful and relavent.  I have been considering obtaining a general contractors license only so that I can obtain additional builders insurance to protect myself because going through each contractor's insurance paper work and asking them to add me to their policy is not practical on some smaller cosmetic jobs. As a Broker, I already do have a commercial liability policy and I thought along with Affinity, I would be fully covered. Clearly that is not the case in many scenarios.  since it seems that most of the risk we flippers take is in the hiring of construction workers. If you have any good referrals of attorneys/brokers who specialize in assessing the overall risk and recommending  proper insurance to mitigate those risks, please let me know. 

Our agency specializes in risk management. Here's the rub with your plan though. You still have to do insurance compliance with all contractors, in-fact, when doing it properly, it's even more time consuming as I would almost guarantee your current risk management plan on collecting insurance certs is not currently up to best practices (I.e. No collecting endorsement copies, no credit checking your contractors, no completed ops additional insured up to statute of repose, no checking contract compliance after the job is finished, etc).

Another question I have is once the property is sold, suppose 5 years later a rafter or beam falls on somebody causing injury and the original contractor is long gone which happens a lot in this business. Are there any converges for me the seller? 

Originally posted by @Darish D. :

Another question I have is once the property is sold, suppose 5 years later a rafter or beam falls on somebody causing injury and the original contractor is long gone which happens a lot in this business. Are there any converges for me the seller? 

 Hi Darish, thanks for your patience here... !

I know you mentioned that you already have a commercial liability policy in place. Typically speaking in order to have coverage for something like this you would want to make sure your CGL includes a limit for "Products/Completed Operations". Limits and structure of the policy can vary (i.e. can be written on a "per occurrence" or "claims made" basis, etc.) so I would suggest reviewing your current coverage with your CGL agent.

As I mentioned previously, the best approach is always going to include getting proof of insurance from any contractor you have work for you and having them list you as an additional insured. Make it a part of the bidding process so that you only consider those who are appropriately insured (and licensed if needed). Get a copy of their current insurance certificate with the bid and as a part of your due diligence make a quick call to their agent to confirm that coverage is active. 

If you hire them, keep the certificate(s) in your files permanently. (If working with them continuously, making sure you always have the most current proof of coverage of course.) Then, if the contractor "disappears"/closes his business/etc. down the road and there is an injury, you still will have all the information needed to submit the loss to his insurance carrier. Especially when it comes to structural work, you put yourself at a huge risk if you don't spend the time to do proper insurance compliance as Derek mentioned... Building a "team" of contractors that you hire regularly will also help you save time too...

Hope that helps!

-BreAnn

This is very helpful...thanks. I see that it is currently excluded from my General liability policy so I will be trying to add that in obviously.

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