The Oregon Department of Consumer & Business Services (DCBS) provides information for contractors on general liability insurance in the state. The full fact sheet is available here.
Are contractors required to purchase liability insurance?
Oregon law requires building contractors to carry general liability insurance, which includes products and completed operations coverage. The state Construction Contractors Board (CCB) will not issue or renew a contractor license without proof of insurance. Coverage limit requirements vary depending on the license category. Many contractors carry coverage in excess of CCB’s requirements.
What does general liability insurance cover?
General liability insurance covers property damage and bodily injury losses caused by the contractor that occur as a result of his or her work. It does not provide coverage for poor workmanship or construction defects. Limitations on these insurance contracts vary from insurer to insurer. Exclusions in a policy for specific exposures such as multi-family dwellings, tract home projects, condominium construction, and exterior insulation finishing systems are common. Every policy is different, so it is especially important for the policyholder to understand his or her coverage.
General liability can be written on an occurrence or a claims-made basis:
Occurrence policies provide coverage for liability that occurs while the policy is in force, regardless of when the claim is reported. Occurrence policies can also be issued with a manifestation trigger, providing coverage only when the first manifestation of bodily injury or property damage occurs during the policy period. Under current Oregon law a claim can be brought for up to 10 years after completion of a project.
Claims-made policies provide coverage for claims that are reported while the policy is in force. Often the claims-made coverage is subject to a “retroactive date” and will not cover claims that are made while the policy is in force that are due to occurrences that were before the retroactive date. Claims reported after the policy is cancelled or replaced are not covered unless the contractor purchases an “extended reporting” option, sometimes known as “tail coverage.” Policies for contractors written on or after January 1, 2008 must include products and completed operations coverage “according to the terms of the policy and subject to applicable policy exclusions.” The certificate of insurance or electronic proof of coverage provided to the CCB is required to document that the products and completed operations coverage is included.
What are the current issues surrounding contractor liability insurance?
Premium rates for contractor liability insurance have increased in recent years. At the same time insurers’ criteria for issuing policies are tighter. Many contractors find that they either face premium hikes, or their policies are canceled or non-renewed. It may be difficult to obtain new coverage. Contractors who work on the envelope of the structure, such as residential builders, framers, siders, roofers, and window and door installers, have been particularly hard-hit. In some cases contractors find that while they may be able to obtain or renew coverage, the contract is more limited than it was previously. This leaves the contractor with increased exposure to uninsured liability risk.
How much has the cost of this insurance increased?
The rating bureau loss costs which insurers use to determine their final premiums for contractor classes have increased an average of 18 percent for products and completed operations liability coverage. Changes in payroll or gross sales are other factors that affect contractor liability premiums. Often the more dramatic rate changes experienced by individual contractors stem less from rate
increases by their existing carrier than from situations where their coverage is cancelled and they are unable to find a new policy at a similar price. Upon moving to a new insurer, the premium is typically higher. The new coverage may also be less extensive.
Why have costs increased so sharply?
The insurance industry and others frequently cite a variety of factors that contribute to increased premiums and tighter underwriting standards, including:
- Increased claims and losses stemming from the introduction of new building products or construction methods that result in water damage, mold, and other problems,
- Increased litigation stemming from contractor performance issues, and
- Lower than expected investment returns due to changes in the interest rate environment.