20.1 Introduction and General Considerations

• Library: Virginia Construction Law Deskbook (Virginia CLE) (2019 Ed.)

20.1 INTRODUCTION AND GENERAL CONSIDERATIONS

20.101 Overview of Insurance Options.

A. Risk Associated with Construction Projects. An insurance policy is a risk-shifting device. ¹ It is an agreement that the risk of loss or liability will be allocated to the insurer in exchange for payment of the policy premium and satisfaction of other policy conditions. In a construction setting, the losses and liabilities that may be covered by insurance can take a variety of forms. Among other things, problems or defects may appear in a general contractor's or subcontractor's work, whether due to deficiencies in materials, poor workmanship, or faulty design. Property on or near a construction site may be physically damaged by equipment, construction materials, or failure of the construction itself. Construction accidents may also cause bodily injury to individuals on or near the site.

This chapter explores the different insurance options that exist to address such risks from the points of view of owners, general contractors, subcontractors, and design professionals. ² The chapter provides an overview of third-party liability policies, first-party property policies, and other potentially applicable forms of coverage, including the typical scope of such coverage, common coverage exclusions, and important coverage issues that may arise in a construction context. The chapter also identifies certain pitfalls and special considerations that should be remembered when addressing construction-related insurance issues.

B. Types of Policies Available. There are various types of insurance policies available to address many of the different forms of risk that are inherent in construction work. Commercial general liability policies, or "CGL" policies, are designed to cover the insured's legal liability to third

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parties that may be incurred for certain types of accidental injury, such as property damage, bodily injury, or personal and advertising injury. Suppose, for example, that a general contractor or subcontractor who is building a brick wall accidentally drops a brick, injuring a pedestrian who is walking by the construction site. The contractor's potential liability for the pedestrian's injury is the type of risk that may be covered by a liability policy. On the other hand, the risk that an insured will incur contractual liability for faults or defects in its own work is typically viewed as a business risk to be borne by the insured and is not covered by a CGL...