General Liability Claims in Construction: Key Issues and Industry Insights

Published on 13 November 2024 at 08:54

The construction industry, by nature, carries high risk, with complex projects, numerous parties involved, and often hazardous work environments. General liability (GL) insurance is crucial for construction companies, providing coverage for third-party bodily injuries, property damage, and legal claims arising from daily operations. However, the construction sector encounters unique GL claims issues that challenge its operations, profitability, and reputation. In this article, we examine five major GL claims issues facing the construction industry today.

 

  1. High Frequency of Job Site Accidents and Injuries

Construction sites pose numerous hazards, from heavy machinery to elevated workspaces, making worker and third-party injuries an ongoing concern. The U.S. Bureau of Labor Statistics (BLS) reported that the construction industry had one of the highest rates of workplace fatalities and injuries, accounting for 21% of all worker fatalities in 2021.  In 2021, there were 1,008 fatal injuries in construction, accounting for nearly 1 in 5 workplace deaths in the U.S. (BLS).

According to OSHA (Occupational Safety and Health Administration), the "Fatal Four"—falls, being struck by an object, electrocutions, and caught-in/between—are responsible for over 60% of construction fatalities. Falls alone represent 33.5% of all construction fatalities, underscoring the need for rigorous safety protocols and fall-prevention measures (OSHA). Construction firms not only face financial exposure from these claims but also deal with project delays, reputational risks, and higher insurance premiums.

  1. Poor Risk Transfer and Contractual Liability Issues

Construction projects often involve contractors, subcontractors, suppliers, property owners, and other stakeholders, creating complex relationships. This network complicates liability allocation when an incident occurs.  Construction contracts typically include clauses to transfer risk, such as indemnity agreements and additional insured provisions.  However, inadequately or poorly drafted contracts can lead to disputes about who is responsible for incidents, leaving the primary contractor vulnerable to GL claims. 

An IRMI (International Risk Management Institute) survey showed that nearly 60% of construction liability claims involve disputes between contractors and subcontractors over contractual obligations

If risk transfer provisions are unclear or not properly enforced, construction companies may bear the full liability for claims that should have been assumed by subcontractors or other involved parties.

Disputes over liability can lead to prolonged claims processing and legal battles. Industry experts estimate that claims involving multiple parties take 20-30% longer to resolve compared to claims with a single responsible party, leading to extended project delays and increased costs. 

  1. Adjacent Property Damage Claims

Construction projects, especially those involving demolition, excavation, or renovation, carry a high risk of accidental damage to surrounding property. Property damage claims are common in construction and can quickly escalate due to the value of neighboring structures or if the damaged property holds historical or environmental significance.  Property damage accounted for 24% of all construction-related GL claims, according to a 2022 Marsh report.

The Insurance Information Institute (III) reports that property damage claims in construction average $30,000 per incident, though larger claims for high-value or specialized projects can cost hundreds of thousands or even millions of dollars. The III notes that construction projects near urban centers or sensitive environments face 40% higher property damage claim costs, as these areas typically involve high-value or high-profile structures. These incidents often lead to disputes with property owners and insurers, with claims covering not only repair costs but also business interruption or lost rental income for impacted parties.

  1. Defective Workmanship Claims

Claims related to defective workmanship have increased in recent years as construction projects become more complex and involve more stakeholders. Aon’s 2022 study found that defective workmanship was responsible for 27% of all construction GL claims.  Defective workmanship claims arise when construction practices, substandard materials, or errors cause structural issues or property damage. These claims can be challenging because many general liability policies exclude coverage for workmanship-related issues, requiring construction companies to bear the repair and legal costs themselves.  The National Association of Home Builders found that the average cost of a defective workmanship claim is approximately $85,000, with some high-stakes claims exceeding $1 million due to repairs, project delays, and reputational damage,

Aon recently reported that defective workmanship claims were the second-most frequent source of claims in construction, and such claims can take years to resolve, as issues often arise only after project completion. Many firms purchase builders' risk or errors and omissions (E&O) insurance to address this gap, but the cost of such coverage is high.

  1. Environmental and Pollution Claims

Construction activities, such as excavation, demolition, and the use of hazardous materials, increase the risk of pollution incidents. Pollution liability claims arise when construction activities lead to environmental contamination or pollution that affects neighboring properties, water sources, or public health. According to the Environmental Protection Agency (EPA), construction pollution incidents in 2021 led to over $500 million in cleanup costs and fines nationwide.  Such incidents are often excluded from standard GL policies, leaving companies exposed to potentially massive cleanup costs, fines, and damages unless they carry specific environmental liability insurance.

The American Risk and Insurance Association notes that pollution-related claims are growing faster than other types of claims in construction, largely due to tighter environmental regulations and higher public expectations around environmental responsibility.  With growing regulatory focus on environmental protection, construction companies are facing stricter oversight and higher costs for pollution-related claims. The EPA reported a 15% increase in pollution-related claims in construction between 2018 and 2022, driven by new regulations and increased public awareness.

 

Conclusion

The construction industry faces unique general liability risks that require specialized attention and risk management. High-frequency job site injuries, poor risk transfer, adjacent property damage, defective workmanship, and environmental claims all contribute to substantial challenges in managing GL claims effectively. Data clearly show the financial and operational impact of these claims, underscoring the importance for construction companies to adopt proactive measures. These include stringent safety protocols, clear contractual terms, comprehensive insurance coverage, and adherence to environmental regulations to protect both their financial health and reputation in a competitive industry.  At Tivra, not only can we provide guidance and assist with putting these proactive measures in place, but, when a claim does occur, we are here to implement these methods to ensure that you are fully protected.

 

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