Most insurance companies hate underwriting residential construction firms. There, it’s out there.

Commercial insurance premium rates have seen consistent upward pressure — especially in the residential construction sector. One major factor is the increasing frequency and severity of residential construction claims. For example, a recent video posted on YouTube showed the collapse of a stick-frame apartment construction project due to unexpected high winds from a severe rainstorm in Dallas, TX. As you can see, carriers want to reduce their exposure to these types of perils.

When a carrier is working with a standard ISO General Liability policy (or even with one of their own “manuscript” policies), they can reduce their exposure by adding exclusions to the policy. As the term refers, by adding an exclusion, the carrier is telling you (the insured) that these types of claims will be denied. On the other hand, if you ask for a carrier to add a specific endorsement to your policy, they are telling you (the insured) that these types of claims will be covered. (Note: In this situation, if the carrier is materially increasing its exposure, you are likely to be charged some additional premium.)

Let’s say you are a successful electrical HVAC subcontractor and things are going well for you and your firm. Then one of your top clients, the owner of a local general contractor tells you they have an issue at their house and asks if you can send someone to take care of it. You send your top crew to your client’s house to fix their AC and, since it was a simple matter, your team took care of it in no time. Your client has a working AC and is happy, and you’ve gone above and beyond to help them out. All good, right?

Not so much.

Five days later, due to work done by your team, an electrical fire starts and burns down your client’s home. Your client and their family got out unharmed, but their house is destroyed. You feel awful, but you assure your client you have insurance and that you will make sure his house will be rebuilt.

You contact your carrier and put them on notice that an incident has occurred. You explain the details of the incident with the claims representative, and you’re prepared to cooperate with the investigation. No one wants to have a claim, but that’s why you have insurance.

Then the real bad news comes.

Your general liability insurance program has a residential exclusion. In short, your carrier provided coverage for your business operations, which are strictly commercial and NOT geared for residential projects. So, what does it mean?

Your claim is denied, and you are on the hook for your client’s destroyed home.