Risk management

Commercial general liability

Contractor shall obtain, at contractor’s expense, and keep in effect during the term of this contract, commercial general liability insurance covering bodily injury and property damage in a form and with coverages that are satisfactory to the state. This insurance shall include personal and advertising injury liability, products and completed operations and contractual liability coverage for the indemnity provided under this contract.  Coverage shall be written on an occurrence basis in an amount not be less than $ _______ per occurrence. Annual aggregate limit shall not be less than $ _______.

Commercial general liability (CGL) is required in most contracts.  This coverage is perhaps the most important of all insurance policies in a contractual relationship. It ensures that the contractor has broad liability coverage for contractual activities and for completed operations.

Use in most services contracts, trade or professional contracts, and most public contracts. Depending on the outcome of a risk assessmentconsider requiring whenever Ccntractor will be doing work on state’s property. Use when state could be partially blamed for property damage or bodily injury caused by contractor. Use to provide financial support to keep contractor in business even if sued.

Mobile equipment is often used in construction and resurfacing projects. This equipment is designed for use off public roads and is not subject to motor vehicle registration. When Contractors use mobile equipment , it requires CGL coverage for the liability exposure arising from the contractor´s operation of the mobile equipment. Also require automobile liability whenever the contractor transports mobile equipment to the work site. (CGL insurance does not cover the transport of mobile equipment.) Ensure automobile liability includes coverage for owned, non-owned or hired vehicles.

Commercial general liability (CGL) should be required in most contracts.  This coverage is perhaps the most important of all insurance policies in a contractual relationship. It ensures that the Contractor has broad liability coverage for contractual activities and for completed operations.

Defends and pays contractor’s liability for unintentional personal and advertising or bodily injury and property damage (including loss of use) to others. Usually excludes liability for pollution, and sex abuse. Recommend policy specifically include products & completed operations coverage.

Keep in mind that the contractual liability coverage is most likely limited to “liability for acts the insured would have in the absence of a contract."  Do not depend on this type of insurance to cover “the indemnity assumed under the contract."  If the risk of something going wrong is high or extreme, relating to contractual liability, it is important for your agency to consider  other non-insurance risk control methods to handle these risks.

Coverage is generally written on an occurrence basis. However, on occasion, coverage may be written as "claims made". Require "Tail" Coverage for all "claims made" coverage. If excess or umbrella coverage is used to supplement the primary CGL policy, the excess coverage amounts must begin where the primary CGL limits end. Alternative insurance called “wrap up "may apply on very large construction projects ($90 million in construction costs).

Goods with no services: CGL coverage may still be required, particularly with regard to coverage for products and completed operations under the CGL policy (which covers bodily injury and property claims for damages resulting from negligence associated with businesses that manufacture something or sell a tangible product or good(s)).  Completing a risk assessment​ will help determine if the good(s), if faulty or defective, could injure a person or damage property.

When state premises are leased, ensure that the lessee or tenant´s CGL coverage provides adequate limits for property damage to cover the state´s exposure to loss. This coverage is called "Damage to Premises Rented to You" (old terminology - fire damage legal liability). Note: In the case of damage by fire, coverage applies when either the premises are rented or temporarily occupied with permission of the owner (state). Require property coverage when the limits under this CGL coverage are inadequate for the value of the structure.

Most commercial general liability policies exclude liability arising out of watercraft, so special coverage is needed. See marine insurance.


Bodily injury - Bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.

Contractual liability - A portion of commercial general liability (CGL) coverage that allows limited coverage for liability assumed under the contract. The coverage allowed by contractual liability includes:

  • Liability that the insured would have in the absence of the contract or agreement.
  • Liability assumed under an "insured contract."
    • Per CGL policy definitions, an "insured contract" means:
      • A sidetrack agreement (a railroad term). 
      • Easements.
      • Agreements required by municipalities as a result of ordinances (not for work done for municipalities).
      • Elevator maintenance agreements.
      • Liabilities that "would be imposed by law in the absence of any contract or agreement."
      • A contract for a lease of premises.

General aggregate limit under the standard CGL policy means: The maximum limit of insurance payable during any given annual policy period for all covered losses other than those arising from the products and completed operations hazards.

Personal and advertising injury means: Injury, including consequential "bodily injury," arising out of one or more of the following offenses:

  • False arrest, detention or imprisonment.
  • Malicious prosecution.
  • Wrongfulentryy into, or eviction of a person from, a room, dwelling, or premises that the person occupies.
  • Oral or written publication of materials that slanders or libels a person or organization or belittles a person´s or organization´s goods, products, or services.
  • Oral or written publication of material that violates a person's right of privacy.

Products and completed operations coverage - Covers losses arising out of a manufacturer, merchant, or distributor's liability, due to injury or damage to a third party resulting from the use of a covered product. Covers the contractor for damage or injury to third parties resulting from something the contractor made, sold, repaired, or installed. The loss or damage resulting from the service would be covered, not the contractor's actual product.

Use the risk assessment​ to assess the risks of the particular contract to determine appropriate insurance limits and risk control measures. Ask questions such as, but not limited to: How could the contractor´s activities cause property damage or injury to others? What is the chance that serious damage or injury will occur? Will the contractor have access to employees, clients, and/or confidential information? Where will the contractor perform the contractual work at home, on state premises, or at other locations​?