Understanding Common General Liability (GL) Exclusions and Why Homebuilders Should Avoid Them

For homebuilders, general liability (GL) insurance serves as a foundational layer of protection, covering a range of risks associated with construction projects. However, not all GL policies are created equal. Many policies contain specific exclusions that can leave builders vulnerable to potential financial and legal risks. Understanding these exclusions and avoiding them is crucial for homebuilders who aim to operate with comprehensive coverage and minimize liability exposure.

1.Understanding Pollution Exclusions (CG 00 01 04/13, CG 21 49 and CG 24 15)

The pollution exclusion in the ISO Commercial General Liability (CGL) Coverage Form (CG 00 01 04/13) is restrictive but allows limited coverage in specific circumstances. For example, coverage may apply to injury or damage from the products and completed operations hazard, accidental releases of fuels or operating fluids from mobile equipment, and gases or vapors released during contractor operations. Coverage may also extend to ongoing operations at an additional insured’s premises under certain conditions or bodily injury caused by smoke, fumes, or soot from building equipment or a "hostile fire."

However, many insurers, especially in the Excess & Surplus (E&S) market, attach Total Pollution Exclusions (e.g., CG 21 49 or CG 24 15), which eliminate these exceptions and significantly restrict coverage. These exclusions are particularly concerning in construction and homebuilding, where pollution risks such as mold, asbestos, lead, or defective work are common and can lead to expensive cleanup, remediation, or lawsuits.

To address these gaps, contractors and homebuilders should consider standalone Contractors Pollution Liability (CPL) policies or GL policies with specific pollution endorsements. Proper pollution liability coverage is essential to managing risks and avoiding financial exposure in industries with significant environmental liabilities.

2. Construction Defect Exclusions (CG 22 94 and CG 22 95)

Another critical exclusion in some GL policies is for construction defects, which encompasses issues arising from poor workmanship, materials, or

design flaws. Since homebuilders often manage multiple subcontractors, the risk of construction defects can be high. If a policy excludes coverage for construction defects, homebuilders may face substantial financial burdens if a defect is discovered. Claims related to cracked foundations, water intrusion, or structural weaknesses can be extraordinarily costly, potentially impacting a builder’s reputation and bottom line. Opting for a policy that includes some level of construction defect coverage is vital to shielding your business from these risks.

3. Product and Materials Exclusions (CG 22 34)

GL policies may also exclude coverage for defects or failures related to specific products or materials used in construction. If a particular material fails after installation, such as a roofing membrane or siding that deteriorates prematurely, an exclusion of this type could leave homebuilders on the hook for repairs or replacements. While some material

exclusions are standard, homebuilders can work with insurance providers to negotiate for endorsements or additional coverage that protects against these risks. Including product liability in your coverage helps ensure that

the entire scope of your project, from materials to finished work, is safeguarded.

4. Personal and Advertising Injury Exclusions (CG 21 33)

Personal and advertising injury exclusions can leave homebuilders vulnerable to claims related to slander, libel, or intellectual property infringement. While these risks may seem distant from typical construction claims, issues can arise, especially if the homebuilder engages in marketing activities or public statements that could be misconstrued.

Personal injury claims can damage a builder’s reputation and lead to costly settlements. To avoid these exposures, homebuilders should seek GL policies that cover personal and advertising injury, especially if marketing and advertising are significant components of their business strategy.

For homebuilders, securing a comprehensive GL policy without critical exclusions is essential to minimizing liability risks and maintaining a stable financial foundation. By understanding common exclusions and their potential impacts, homebuilders can proactively seek policies that offer complete protection or negotiate endorsements to cover gaps. Evaluating coverage needs carefully and collaborating with insurance providers can ensure your business remains secure against unforeseen claims. In an industry with inherent risks, having robust GL coverage is an investment in your business’s long-term stability and reputation.