When you operate a construction business, a major claim not covered by your insurance can be financially devastating. Many home builders’ insurance policies have significant coverage gaps that leave contractors exposed to risks they believed were covered. Recognizing these vulnerabilities enables you to secure your company with the right coverage and amounts.
While general liability policies provide a foundation of protection, they often exclude policy benefits in areas where construction businesses are most exposed. This blog highlights the most common gaps that could leave a homebuilding business vulnerable.
1. General Liability Does Not Cover Professional Liability
General liability policies cover events including bodily injury and property damage, but they exclude claims related to professional services. If a contractor merely follows blueprints to construct a building, general liability will suffice. However, if the contractor is a design-build firm or alters the blueprints, they require professional liability coverage.
Professional liability insurance covers errors, omissions, or negligence in professional services. Additional professional liability insurance may cover cyber breaches, or employment practices. An experienced insurance provider can assess industry and business specific policies to cover specific gaps.
2. Faulty Workmanship Exclusions Create Major Gaps
Most general liability policies include a “damage to your work” exclusion that denies claims for replacing or repairing defective work. This exclusion protects insurers from paying for work that simply didn’t meet contract specifications.
While some policies provide limited coverage for damage caused by subcontractors’ faulty work, this protection often proves insufficient. While courts have increasingly recognized that unexpected property damage arising from defective workmanship can constitute an occurrence, the interpretation of this concept varies significantly by state.
If improper installation causes a roof to fail, your insurer might cover damage to the homeowner’s belongings but deny coverage for replacing the roof itself. Contractors may need additional endorsements to fill this gap.
3. Pollution and Environmental Exposures Are Not Covered
Construction projects regularly involve environmental risks, yet standard general liability policies typically exclude broad pollution. Activities such as disturbing contaminated soil, accidental fuel spills, or improper handling of hazardous materials create exposures that could become costly.
Federal environmental requirements place significant responsibilities on construction contractors. The EPA enforces requirements under laws such as the Resource Conservation and Recovery Act for the safe handling and disposal of hazardous wastes, and under CERCLA (Superfund) for improper disposal. Contractors working in pre-1978 housing must also follow lead-safe work practice standards.
Construction sites disturbing one or more acres require NPDES permits for stormwater discharge. Even minor pollution incidents can result in costly cleanup and regulatory penalties, which general liability policies typically exclude.
Contractors’ pollution liability insurance fills this gap by covering both cleanup costs and third-party claims arising from pollution conditions, including mold and microbial contamination.
4. Tools and Equipment Coverage Falls Short
Many builders assume their commercial property policy adequately covers tools and equipment, but standard policies often provide limited protection for equipment at job sites or in transit. Business auto policies typically won’t cover tools that aren’t permanently attached to vehicles.
Contractor’s equipment coverage, a type of inland marine insurance, protects mobile tools and equipment wherever they’re located. Without this specialized insurance plan, theft or damage at job sites requires paying out of pocket for replacements. When expensive equipment is stolen from vehicles overnight or from unsecured job sites, you may end up paying for it.
5. Cyber Risks Remain Unaddressed
Modern construction businesses rely heavily on digital systems for project management and client communication. Yet, basic home builders insurance policies don’t address increasingly common cyber risks.
When builders store client information, architectural plans, or payment details electronically, a data breach or ransomware attack can result in notification costs, legal expenses, and business interruption losses. Cyber insurance provides coverage for these exposures, including costs associated with recovering from cyberattacks and potential regulatory fines.
Pro Tip: Review Your Policy Limits Regularly
As material and labor costs increase, coverage limits that seemed adequate years ago may no longer protect against today’s larger claims. Make it a habit to review your policy limits annually to confirm they align with current project values and potential exposures.
The definition of professional services in policies can also create unintended gaps. Some policies specifically define covered services and may exclude activities such as facility management or construction software services that many contractors provide.
Protect Your Business with Burton & Company
Coverage gaps in builder insurance policies represent real financial exposures that can threaten your business when claims arise. At Burton & Company, we specialize in construction insurance and understand what issues builders and contractors experience in Virginia.
For over 100 years, we’ve served businesses in Virginia by identifying gaps before they become problems. We take time to understand your operations, then design insurance packages addressing your actual exposures. Our relationships with top-rated carriers give you access to comprehensive home builders insurance options that protect what you’ve built.
Don’t wait until a claim arises to find out that you lack sufficient coverage. Contact Burton & Company online or call (888) 652-1046 to assess your existing policies and pinpoint any possible gaps. Our expertise in construction insurance means you can trust your business is completely safeguarded.
