Do You Have a Subcontractor Exclusion Hiding in Your General Liability Policy?
The CG 22 94 endorsement, officially titled "Exclusion—Damage to Work Performed by Subcontractors on Your Behalf, " is a modification to standard Commercial General Liability (CGL) insurance policies. This endorsement eliminates the subcontractor exception to the "Your Work" exclusion, thereby excluding coverage for property damage arising from work performed by subcontractors. For homebuilders, who frequently rely on subcontractors for various construction tasks, the inclusion of this endorsement can significantly reduce their insurance protection.
Impact on Homebuilders:
Elimination of Subcontractor Coverage:
Standard CGL Policy: Typically excludes coverage for damage to the insured's own work but includes an exception for work performed by subcontractors. This means that if a subcontractor's work causes damage, the policy would cover the resulting property damage.
With CG 22 94 Endorsement: The subcontractor exception is removed, meaning any property damage arising from a subcontractor's work is excluded from coverage.
Increased Financial Liability:
Without insurance coverage for subcontractor-related damages, homebuilders become financially responsible for correcting and repairing any defective work performed by subcontractors.
Legal and Reputational Risks:
Defective subcontractor work can lead to significant property damage, resulting in lawsuits against the homebuilder. Without insurance coverage, the homebuilder must bear legal defense costs and potential settlements, which can also harm their professional reputation.
Example Scenario
A homebuilder contracts a plumbing subcontractor to install the plumbing systems in a new residential development. After project completion, a major leak occurs due to improper installation, causing extensive water damage to multiple units.
Without CG 22 94 Endorsement: The homebuilder's CGL policy would cover the costs associated with the water damage, including repairs and any legal expenses arising from claims.
With CG 22 94 Endorsement: The policy would exclude coverage for the water damage caused by the subcontractor's faulty work, leaving the homebuilder responsible for all associated costs.
Recommendations for Homebuilders
Policy Review: Carefully examine your CGL policy to determine if the CG 22 94 endorsement is included.
Consultation: Discuss the implications of this endorsement with your insurance agent or broker to understand its impact on your coverage.
Subcontractor Agreements: Require subcontractors to carry their own liability insurance and name your company as an additional insured to provide an extra layer of protection.
By taking these steps, homebuilders can better protect themselves from the financial and legal risks associated with subcontractor work.
