Construction contract documents are more frequently stipulating $2 million single occurrence, $4 million aggregate general liability policy limits verses the more common $1 million single, $2 million aggregate limits held by the vast majority of contractors. While the higher limits provide more coverage than a traditional policy, it’s important to also consider an umbrella or excess liability policy. The general consensus in the insurance industry is a $1 million/$2 million policy with the appropriate endorsements and a supporting excess liability policy can provide equivalent coverage to a $2 million/$4 million policy.
Let’s suppose a project owner or general contractor requests a $2 million/$4 million underlining general liability policy, plus a $5 million excess liability policy—ultimately providing coverage for any single occurrence of up to $7 million, and $9 million in the aggregate. The equivalent in a traditional insurance program would provide even better coverage with a $1 million single occurrence, $2 million general aggregate and an $8 million excess liability policy. Under this structure, there would be $7 million of coverage for a single occurrence and $10 million in the aggregate.
The problem with the $2 million/$4 million limit is few insurance carriers actually have filings to offer such a policy, yet they can offer excess liability policies to go over the top of the traditional general liability policy.
Occasionally, requests also are made for $2 million limits on the employers liability section of workers’ compensation insurance policies. Again, the dilemma is that few carriers have filings to even offer such policy limits. However, the desired $2 million limit can be reached with an excess liability policy over the top of the employer’s liability coverage.
It’s unclear why such non-traditional limits are being requested. Insurance carriers consistently request more restraint on the part of contract authors, as well as ask them to consult insurance industry executives on what actually exists in the marketplace. When the subject is drilled down to the various risk managers and attorneys authoring such policy requirements, they almost universally agree the traditional structure with an appropriate excess liability policy is sufficient.
The problem still exists because boilerplate contract language is not getting changed. In addition to risk managers and attorneys correcting the insurance specifications in their construction documents, it would be beneficial to communicate the technical reasoning behind policy limits to staff members responsible for reviewing and accepting insurance certificates, as well as give them the authority to accept a more traditional insurance structure with the appropriate umbrella limits.