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Understanding Solar Contractor’s General Liability Insurance

When a newly purchased inverter, valued at about $54,000, was stolen off one of his jobsites during the night,
Brian Kanes filed a claim with his general liability insurance carrier to cover the loss. He had assumed that
while his company’s property was on the jobsite it would be covered under his policy. Not so, said his general
liability carrier.

“When I put in the claim, I was told that if you have tools on the jobsite, [to cover them] you must have an
inland marine policy,” says Kanes.

Because responsibility for understanding the policy ultimately falls on the remodeler, Kanes, filing his first
commercial insurance claim after six years in business, became a victim of his own inexperience. “No one
ever told me, and I didn’t think to ask,” he says in hindsight.


Unfortunately, Kanes’s case is not uncommon in the renewable energy industry. Many solar integrators do not
entirely understand what is covered— or, perhaps more importantly, what isn’t covered — under their general
liability policy.


For the majority of solar contractors, general liability insurance is considered a necessary evil. It’s
complicated, it’s stressful, and it’s often expensive. Navigating the laundry list of amendments to a policy’s
coverage (called exclusions) is no easy task for someone unfamiliar with insurance jargon. For those in
search of clarity, it makes sense to begin with the basics.

Risk


DEFINING COVERAGE


General liability insurance essentially provides two-pronged coverage to the insured party. It is designed to pay
for bodily injury and property damage that the [policyholder] is responsible for.

Bodily injury coverage applies only to third-party injuries — those that occur to someone other than the
business owner or an employee. (Jobsite injuries to employees would be covered by a workers’ compensation
policy.) Similarly, coverage for property damage applies to property other than the work the contractor has
performed. In other words, if a solar contractor is building an addition to a home when an electrical malfunction
burns down both the house and the addition, the house would be covered under the general liability policy,
while the addition would not.


The technical term for the first of these two broad types of liability coverage is premises exposures, a type of
exposure common to nearly all businesses. It includes coverage for any injuries that occur on property owned
by or under construction by the policyholder. An example, if someone walking on a jobsite who happens to slip
and hurt himself. The injury is covered under premises liability.


The second type of coverage is called products liability/completed operations. This part of the policy
covers any injuries or damages that are caused by goods or services sold by the solar contractor.
If you put new solar array on a residential rooftop, and four months [after completion of the job] a panel falls off
and hurts someone, then the injury is covered. But it is important to remember that, in this situation, the panels
them selves would not be covered— only the resulting damage. Insurance will not pay to fix a job done
improperly.


Completed operations lawsuits are the most commonly filed, says Mike Smith, agent and broker with Solar
Insure in Southern California, because the statute of limitations on lawsuits is so long.
“There is a 10-year statute on completed operations lawsuits for property damage [in most states],” he says.
“But many solar integrators are not aware that there is no time limitation for bodily injury lawsuits,” meaning a
solar installer can be sued for injuries resulting from his past work long after he has retired. “This is why I
usually recommend keeping a trimmed-down policy in effect after retirement,” Smith says.

The other alternative, aside from discontinuing insurance and hoping for the best, is to sell your business and
all its liabilities to another party, he adds.

PLUGGING THE HOLES


To ensure predictability and consistency in policy coverage, there is a standard general liability insurance form
used by most insurance carriers in the U.S. This standard list of coverages can then be either expanded or
restricted depending on how much risk the insurance company is willing to absorb (and how much the solar
integrator is willing to pay in premiums).


Amendments to the standard form that restrict coverage are called “exclusions.” Exclusions may restrict
coverage for work in a certain geographical location, a certain type of work, or damage by mold or water,
among other things. Here are some exclusions that in recent years have become common in general liability
policies.


Mold, mildew, and bacteria. Nearly all policies now restrict coverage for moisture-related incidents. “You can
buy additional coverage for mold if you want, but the important thing is knowing [the exclusion] is there.
Care, custody, and control. This exclusion removes coverage for items considered to be temporarily under
care or control of the contractor. For example, Smith says, “if a solar contractor is working on a residential
rooftop and a panel slips out of his hand and takes a chunk out of a roof, the carrier could make the case that
the roofwas under the contractor’s care, and could exclude coverage.” These property-damage exclusions
“are where people are most surprised to find they have no coverage,” Smith says.

Subcontractors.When an electrical sub contractor damaged several inverters during a job John Ryan the
solar integrator felt inconvenienced, but not worried. “The sub had been insured by the same carrier I was
with,” he says. “I thought it was a straightforward liability claim.” But upon investigation, he learned that his sub
contractor’s policy had lapsed. When he took the claim to his own insurance carrier, it initially said the claim
would not be covered, leaving him to foot the bill for the repairs.

Though his insurance company eventually remitted payment for his subs mistake, solar installers can take
away a number of lessons from Ryan’s experience. The first rule— which would have spared Ryan his mess,
had he adhered to it — is to make sure that all trades show a certificate of insurance before performing any
work.“They don’t need [to show] it for every job,” Smith says. “But every year, after renewal, you should be getting a
new certificate.”


It’s also imperative that “hold harmless” and indemnification clauses are included in your contract with the sub.
The “hold harmless” clause states that the general contractor will not be held liable for the negligence of the
trade contractor. The indemnification clause states that the trade will be financially responsible for any loss
that occurs due to his own negligence.


“If the sub does a poor electrical job and burns down the house, the homeowner will sue both the general and
the trade,” Smith says. “‘Hold harmless‘ says the trade won’t sue the general; indemnification says the trade
will step up and take financial responsibility with the homeowner.” However, some states have laws that
prevent or restrict indemnification, so Smith advises enlisting the aid of an attorney to draw up the contract
language.


In addition to taking these steps, integrators should also request that subs name them an “additional insured”
on their insurance policy. “This allows the general contractor to deal directly with the sub’s insurance
company,” instead of merely holding the trade contractor financially accountable, Smith says.
Your own work. As previously mentioned, general liability policies do not cover the actual work being
performed by a contractor. This includes work that is damaged by vandalism, natural disaster, or other
unforeseen incidents.


A “builder’s risk” policy will insure a contractor against the loss of his own work. An installation floater, a type of
inland marine insurance, can also be purchased to insure tools and other materials while they’re on the jobsite.
Other less notable exclusions include coverage restrictions for asbestos, urea formaldehyde, computer
records and other “intangible data,” and employment practices.

HOW MUCH IS ENOUGH?


Finding the right level of general liability insurance for your company can be tricky.
“No one can tell you how much to buy unless you can tell them how much you’re going to get sued for,” Smith
says. There are two types of limits to keep in mind when purchasing insurance: the per occurrence limit (the
maximum a carrier will pay per claim filed) and the aggregate limit (the total they’ll pay during the policy period).
Smith recommends obtaining a policy with at least a $1 million per occurrence limit. It is common to have an
aggregate limit that is twice the per occurrence limit, though three times is better, Smith adds.

It’s also a good idea to carry an umbrella policy on top of your general liability policy to cover any loss that goes
beyond your coverage. Smith recommends between $2 million and $5 million in extra coverage, depending on
how much you can afford in premiums.

“[Umbrella liability] is cheaper than general liability, and it provides coverage in other areas besides just general
liability,” Smith says, noting that automobile liability and employer’s liability are also covered under the policy.
According to Smith, a comfortable amount of coverage would include a $1 million per occurrence limit, $2
million aggregate limit, and a $5 million umbrella policy on top.