Think You’re Covered? Think Again.
Ever assumed your contractor insurance would cover any job-site disaster?
What if one buried clause in your policy could cost you everything you’ve built?
In construction, insurance should be your safety net—but for many contractors, that net has holes they don’t even see. Exclusions hidden deep in your policy can gut coverage when you need it most.
This article exposes the 11 most dangerous contractor insurance exclusions, explains how they work, and shows why understanding them could be the difference between surviving a claim or going bankrupt.
Why Exclusions Are So Common in Contractor Policies
Construction is high-risk by nature. Between worker injuries, property damage, subcontractor disputes, and environmental exposure, the list of liabilities is long. Insurers manage this risk by carving out coverage through exclusions—language that defines what the policy won’t pay for.
In the Excess and Surplus (E&S) market especially, exclusions can be so sweeping that some policies leave contractors wondering if they’re even insured at all.
If you haven’t reviewed your exclusions, the truth might be: you’re not.
Understanding the Three Tiers of Contractor Coverage
Before diving into exclusions, it helps to know how contractor insurance is typically layered:
Tier 1: Contractor Essentials
This includes general liability, workers’ comp, commercial auto, property, and tool coverage—core protections for day-to-day operations.
Tier 2: Required by Contract
Often mandated on larger projects, this tier includes umbrella or excess liability, employment practices liability (EPLI), and coverage for leased equipment.
Tier 3: Large Project Coverage
This tier covers more complex exposures like pollution liability and contractor’s professional liability (E&O), usually tied to ground-up or specialized work.
Exclusions show up in every tier, but the higher the stakes, the more costly they become.
The 11 Most Problematic Contractor Insurance Exclusions
These are the exclusions most frequently responsible for denied claims—and why they matter.
1. Injury to Employee (Action Over Exclusion)
Removes coverage for third-party suits filed after a subcontractor’s employee gets injured. Especially critical in states like New York with strict labor laws.
Why it matters: You may be sued even if you weren’t directly at fault—and have no coverage to defend yourself.
2. Subcontractor Injury Exclusion
Applies when subcontractors or their workers are injured—even if they signed contracts transferring risk.
Why it matters: It erases the protections you thought you secured through indemnity clauses.
3. Classification Limitation Endorsement
Limits coverage to only the specific types of work listed in your policy.
Why it matters: If your crew performs any task outside that list—even something small—your claim can be denied.
4. Contractual Limitation Endorsement
Deletes coverage for liabilities assumed in “insured contracts,” which often includes subcontractor agreements.
Why it matters: The indemnity agreements you rely on to shift risk might not actually be covered.
5. Cross Suits Exclusion
Prevents coverage when one insured party (like you) sues another (like your subcontractor) under the same policy.
Why it matters: Naming partners as “additional insureds” becomes pointless if they can’t sue for damages.
6. Damage to Work Performed by Subcontractors on Your Behalf
Eliminates coverage for property damage caused by subcontractors’ work.
Why it matters: If you’re a general contractor relying heavily on subs, this can gut your policy’s value.
7. Independent Contractors Limitation / Subcontractor Warranty
Requires your subcontractors to meet very specific insurance and contractual conditions.
Why it matters: If even one subcontractor falls short, your claim involving them could be denied.
8. Prior Work Exclusions
Removes coverage for anything tied to work performed before the policy’s start date—even if the damage happens during the current term.
Why it matters: When you switch carriers, you could unintentionally wipe out coverage for active jobs.
9. Subsidence / Earth Movement Exclusions
Excludes damage caused by ground shifting—common in excavation, grading, and foundation work.
Why it matters: These are some of the most expensive and frequent claims in new construction.
10. Residential Work Exclusions
Bars coverage for residential projects, either broadly or for specific types like condos and townhomes.
Why it matters: Even a single residential job could trigger a coverage gap if your policy excludes it.
11. Total Pollution Exclusions
Removes all pollution-related coverage, including fuel spills or chemical discharges during regular work.
Why it matters: Contractors in paving, HVAC, or environmental work are especially vulnerable if this exclusion is present.
When Exclusions Ruin Real Claims
Gilbane Building Co. v. Empire Steel
A subcontractor’s employee slipped on muddy ground and sued the GC. The subcontractor’s insurer denied coverage, claiming the GC wasn’t directly at fault. But the court ruled that site conditions suggested possible liability—requiring the insurer to defend.
Lesson: Exclusions often depend on interpretation. Courts may side with policyholders, but only after costly legal battles.
Subcontractor Warranty Trap
A plumber responded to an emergency without providing full insurance documentation. A year later, his repair failed. The contractor’s insurer denied the claim because the plumber didn’t meet the subcontractor warranty terms.
Lesson: If you don’t confirm your subs meet the policy’s requirements, your own coverage could be at risk.
Conclusion: Don’t Wait Until It’s Too Late
Contractor insurance exclusions aren’t harmless legal jargon—they’re real risks that can take you down if you’re not paying attention.
If you’ve never reviewed your exclusions—or don’t know what you’re looking for—you’re gambling every time you take on a job.
And in this industry, the stakes are far too high to play that game blind.
