CGL policies not designed with construction in mind

Commercial General Liability (CGL) policies were not drafted with construction in mind, Neo Tuytel, senior partner with Clark Wilson LLP, told delegates at the 4th annual Insurance Coverage Symposium in Toronto on Feb. 28.

However, questions surrounding coverage and exclusions, as they pertain to contractors and subcontractors — mainly surrounding the “work” and “product” exclusions — have appeared in the courts as of late.

“These cases by and large should not be going to court,” Tuytel said. “They should be arbitrated.”

The insurance industry has done itself a lot of damage by taking so many of their cases to court, Tuytel said. “Save a buck on this case, you pay $10 on the ones coming down the line,” he added.

He noted that it could be resolved on a non-binding basis. “Pick somebody that knows it and do it privately,” Tuytel said of resolving construction coverage claims.

The concern arises in the ambiguity inherent in the fact that work and product can be the same thing, he noted. There are exclusions in the CGL policy related to product and others related to work. But for a contractor, the product and work are often the same thing — i. e. the building.

“The difference between those exclusions create an ambiguity in and of itself,” he added. “It has to be specific; these kinds of general words just won’t cut it.”

If insurance companies do not want to indemnify, they have to exclude. They have got to sharpen the pencils and get back to policy writing, Tuytel said.

“If you don’t want to cover all, you say some and start listing,” he noted. “If insurance companies don’t want to cover that kind of stuff, they’re going to have to redraft.”