General Liability Insurance (GLI) helps protect businesses from claims related to bodily injury or property damage to others. Liability insurance for businesses can be referred to as Contractor Liability Insurance, Commercial General Liability Insurance or Comprehensive General Liability Insurance. Throughout this insurance guide we will refer to liability insurance coverage as GLI.

Although liability policies vary depending on the coverage that has been requested by the Borrower and bound by the insurance company, GLI provides 3 primary categories of coverage:

• Coverage A-Bodily Injury and Property Damage to a third party (slips and falls).
• Coverage B-Personal and Advertising Injury (copyright infringement, slander).
• Coverage C-Medical Expenses (third party injury on a project site)

GLI does not provide protection for commercial auto accidents, employee injuries or illnesses, damage to business property, professional mistakes or errors, illegal acts, or claims over and above the amount of insurance coverage provided. 

Capital City Bank (CCB) originates both term loans and lines of credit yearly to small and larger businesses and lends money to consumers who hire contractors to build homes, investment properties, or perform renovations to real property. As such, the Bank, when originating these loan types or reviewing the acceptance of a builder as a contractor on a CCB financed project, must obtain proof that the contractor or commercial borrower has GLI.

Builder's Risk vs. General Liability Insurance

Builder’s Risk and General Liability Insurance (GLI) are the 2 most common types of insurance coverage that a construction business will obtain. Both types of insurance fundamentally protect the contractor, however each protects against two different risks. Builder’s Risk is considered a type of property insurance, designed to cover certain losses while a specific project is under construction or renovation. These losses could be related to fire, theft, or weather damage.  GLI is a type of coverage that protects a contractor for the Coverages (A, B, C) listed above and is not specific to a certain project or location.  GLI policies are typically issued and renewed on an annual basis.

A third type of insurance that is critical for businesses to carry is Workers' Compensation Insurance (WCI). Unlike GLI, WCI insures against employee related injuries and illnesses, and defense costs associated with lawsuits brought forth by employees.  Other coverages offered under Workmen’s Comp include:

• Cost of medical care and treatment
• Lost wages
• Disability
• Funeral costs if due to a work-related injury

Not all businesses are required to carry WCI in Florida and Georgia. CCB requires the commercial borrower or contractor to submit proof of WCI when being considered as an accepted builder on a CCB financed construction project. If the borrower or contractor is not required to carry WCI, the Bank requests that the business provide documentation stating that WCI isn’t required.

When obtaining a General Liability Insurance (GLI) policy from a client , the bank associate must review the following information:

• Verify that the name of the insured is consistent with the name of your commercial borrower. If the GLI is being obtained on a contractor who is not the borrower, verify that the name on the contractor's policy is consistent with the name identified in the contract (borrower and contractor).
   
• GLI coverage per occurrence- If you are financing a larger project, pay particular attention to the relationship between the project size and the amount of available coverage per occurrence. Inadequate liability insurance coverage could put the commercial borrower, contractor, or the loan on your financed project at risk. In addition, when lending to a contractor, failure for the contractor to carry adequate liability insurance can impact the contractor’s ability to bring in new business for revenue growth.
  
  Note: it is common to see commercial GLI policies underwritten at $1,000,000 for each occurrence, and $2,000,000 in aggregate.
   
• In the cases where the Bank is financing commercial property, the borrower must obtain an endorsement to the GLI policy naming Capital City Bank as an additional insured. Failure to be named as an additional insured on the policy could result in the lender not receiving notice of cancellation of the policy.
   
• Review the policy period to verify that the coverage is active at the time the loan is originated. Construction Loan Administration (CLA) is responsible for tracking expiration dates on all insurance policies, (builder’s risk, workers' comp, commercial, and liability) while the contractor is on the Bank’s Accepted Builder List.
   
• Master Insurance Policy- oftentimes larger commercial borrowers will have a master insurance policy insuring multiple properties and or multiple perils through a single policy with specific insurance limits scheduled for each property. Lending and CLA associates will want to verify that the project being financed with CCB is listed on the master policy.
   
• Verify that the Bank has been listed as a Certificate Holder on the GLI insurance Association for Cooperative Operations Research & Development (ACORD) when financing 1-4 residential constructions.

Below are some of the potential risks to the contractor or commercial borrower in the event GLI is not obtained:

• Contractor or borrower could be out of compliance with laws governing GLI within the state(s) in which the business operates.
• Financial risks to the business if a claim is filed.
• Potential loss in revenues to a business due to the perceived risks clients identify because the company doesn't carry GLI.

The definitions of policyholders, certificate holders, and additional insureds are listed below with explanations for the differences between them.

• Policyholder 
  • The person or entity who has purchased the policy, is the primary Named Insured, has contractual agreements with the insurer, and benefits directly from the coverage.
• Certificate Holder
  • Parties external to the insurance contract, who request documentation in the form of a Certificate of Insurance to confirm adequate insurance coverage exists prior to entering into transactions or agreements.
• Additional Insured
  • Additional insured covenants extend coverage to a party identified by the policy holder in the event of a claim or negligent act. These parties don't pay premiums, but they do receive notices in the event of cancellation, and they assume some responsibilities as that of the policy holder.

When lending associates submit a request to Construction Loan Administration to have a contractor added to the Accepted Builder List, a copy of the Certificate of Liability Insurance form should be included along with any of the supporting documents related to coverage requirements, endorsements or exclusions.

When accepting GLI coverage from a borrower or contractor, staff is required to verify that the insurance policy is underwritten by a reputable company whose name is familiar within the industry. The insurer must be licensed and authorized by law to conduct business within the jurisdictions where the mortgaged property is located.  If staff accepts a binder or policy written by a company with which we are unfamiliar, the associate must check the company’s financial rating in the A.M. Best's Insurance Guide or Demotech. 

• For an insurer rated by AM Best Company (AM Best), a minimum Financial Strength Rating of B+, as reported online at http://www.ambest.com.
• For an insurer rated by Demotech, Inc., a minimum Financial Stability Rating of A as reported online at http://www.demotech.com.

This is especially important when originating larger loans, as well as when originating all real estate secured loans.

A Certificate of Liability Insurance is disclosed in a standard form called an ACORD 25. The use of an ACORD ensures the standardization of documentation of insurance coverage throughout the industry, no matter what carrier sold the coverage.