Understanding Coverage Under Commercial General Liability Policies for Contractors: Negligence vs. Faulty Workmanship

Introduction

Contractors face a wide range of potential liabilities arising from their business operations. To mitigate financial risks, most contractors carry Commercial General Liability (CGL) insurance policies. While these policies provide broad coverage for bodily injury and property damage, there are important distinctions contractors must understand—particularly the difference between coverage for negligence and the exclusion of claims related to faulty workmanship. Herein we outline the key coverages under a typical CGL policy and examines the legal and practical differences between negligence claims and faulty workmanship claims, helping contractors to better manage risk and avoid costly coverage gaps.

Coverage Summary of a Canadian CGL Policy

A standard CGL policy is designed to protect contractors against liability for third-party bodily injury, property damage, and personal and advertising injury caused by their business operations. The core components of CGL coverage include:

1. Bodily Injury and Property Damage Liability: Coverage applies when a third party suffers physical harm or property damage as a result of the contractor’s business operations. For example, if a falling scaffold injures a pedestrian or a fire results from an electrical installation, the policy may respond.

2. Personal and Advertising Injury Liability: This includes coverage for non-physical injuries such as libel, slander, or copyright infringement in advertising.

3. Medical Payments: Covers medical expenses for injuries occurring on the contractor’s premises or job site, regardless of legal liability.

4. Products-Completed Operations Coverage: Extends protection to liability claims arising after the contractor has completed a project or delivered a service. This is essential for claims that arise long after a job is finished.

5. Defense Costs: A vital feature of CGL policies is that they provide legal defense and pay legal fees, even if the claim is groundless.

Despite this broad protection, significant limitations exist—especially concerning claims related to poor or defective workmanship.

Negligence vs. Faulty Workmanship: A Legal and Practical Distinction

Negligence Claims

Negligence refers to the failure to exercise the standard of care that a reasonable contractor would under similar circumstances, resulting in damage or injury to a third party. A contractor may be held liable for negligence if, for instance, they improperly secure materials and cause injury or if their failure to follow building codes results in structural failure.

CGL policies generally provide coverage for negligence-based claims because they involve unintentional acts that cause bodily injury or damage to third-party property. The insurer will typically defend and indemnify the contractor, provided the damage is not to the contractor’s own work or property.

Faulty Workmanship Claims

Faulty workmanship, on the other hand, refers to poor quality work or substandard performance. While it can result in property damage, courts have consistently held that CGL policies are not intended to act as performance bonds or warranties for the quality of a contractor’s own work.

The key legal principle is that a CGL policy covers fortuitous events—accidents or unintended harm—but not economic losses stemming from a contractor failing to perform their work correctly. For example, if a contractor installs flooring improperly and it later buckles, requiring replacement, this is typically considered a business risk, not an insurable risk. However, if that faulty flooring causes water damage to a client's existing property, the consequential damage (not the faulty flooring itself) might be covered. 

What Contractors Need to Be Aware Of

Contractors should be proactive in managing the gap between covered liability and excluded workmanship-related claims. Several practical steps can help:

1. Understand Policy Exclusions: Most CGL policies contain exclusions for “your work,” “your product,” and “impaired property.” Contractors should review these with their insurance broker to understand what is and isn’t covered.

2. Consider Additional Coverage Options: Contractors may want to purchase additional coverage such as Contractors Errors and Omissions Insurance, which can provide protection for certain kinds of professional negligence or faulty workmanship.

3. Use Qualified Subcontractors: Faulty work by subcontractors may still expose the general contractor to liability. It's important to ensure that subcontractors have their own insurance and meet quality standards.

4. Document Work Thoroughly: Keeping accurate records, including contracts, inspections, and communications, can help defend against or mitigate claims.

5. Work with a Knowledgeable Insurance Broker: A broker who understands the construction industry can help tailor coverage to the specific risks associated with a contractor’s trade.

Conclusion

While CGL policies are essential for protecting contractors against third-party claims, they do not serve as a guarantee of the contractor’s own workmanship. The distinction between negligence and faulty workmanship is both legally significant and practically impactful. Contractors must take a proactive approach—understanding their policy exclusions, seeking supplementary coverage when necessary, and maintaining rigorous quality standards—to ensure they are adequately protected in the complex landscape of construction liability.