General contractors have a unique responsibility when working on a custom project. The general contractor is responsible for making decisions with respect to the integrity of the building and is the on site supervisor during the construction process.
The actual building owner takes a back seat to the general contractor with respect to many of these decisions and responsibilities. The Commercial General Liability policy which each General Contractor purchases for their company specifically excludes “property in the care, custody and control” of the named insured. In order to provide coverage for the home build and materials a
separate course of construction (COC) is required. It is commonly understood that a separate course of construction policy is necessary however the requirement for the general contractor to maintain control of the course of construction insurance is often missed. The three basic reasons the General Contractor should arrange the course of construction insurance are as follows:
- The General Contractor’s company name must be reflected on the Course of Construction policy to protect their interests. The policy can be in joint name ie: homeowner and general contractor however the general contractor must be a named insured. If the general contractor is not listed on the COC policy, the general contractor is subject to litigation or subrogation by the course of construction insurer for any losses which may occur on the construction site. These losses will not be covered by the contractors General Liability policy as the COC is in the contractors “care, custody and control.” The appropriate responding policy is the COC.
- The General Contractor needs to maintain control of the insurance. The residential homeowner may indicate they wish to arrange the COC insurance and fail to follow through or lapse the coverage prior to completion. There are several cases where general contractors have been required to pay for uninsured losses due to the building owner’s failure to purchase a COC policy. The subsequent lawsuit from the homeowner indicated the general contractor is responsible for all aspects of the construction project including arranging the insurance.
- The third reason for the General Contractor to arrange the insurance is with regard to what happens if there is a claim. If during the construction process, the house under construction suffers an insured loss, the general contractor will need to communicate with the claims adjuster and deal with the repairs to the COC as well as continue with the balance of the construction project. If the general contractor is not named on the policy, they would have no right to discuss the claim with the Insurance Company adjuster and in fact the adjuster could assign a different contractor for the repairs. Furthermore, any payment from the Insurance Company would be to the named insured on the policy, so if the General Contractor has not been paid for materials and labour it would be up to the building owner to re-imburse the contractor, not the Insurance Company.