Contractors, let this be a warning: don’t get a Prior Works Exclusion on your General Liability policy. Why? Because it reduces your coverage to a big fat zero.
What it does is takes a situation where you would reasonably think you have coverage and says “nope, you don’t have any coverage.” You’ll be left wondering how it is possible that given all the money you’ve spent on insurance that this claim is getting denied.
I’ll try to make it short and sweet: a Prior Works Exclusion is like a rattlesnake. It sneaks into your policy unannounced and strikes, rendering it a limping lifeless worthless piece of paper, much like the rodents the rattlesnake preys on.
Let me explain.
A Prior Works Exclusion says that there will be no coverage for any bodily injury arising out of any project you’ve completed prior to getting your General Liability policy with the company you’re with.
For example, let’s say you’re a plumbing contractor and from 2010 to 2015 you had your General Liability policy with ABC Insurance Co. Now let’s say you installed a plumbing system in a house in 2014. All is good so far. Then in 2015, ABC Insurance Co lets you know they’re raising your rate. You’ve had no claims, no late pays – they just raised your rate. Unacceptable. Your agent finds a new policy through FBN (Fly By Night) Insurance Co for you, which is about the same price as the expiring ABC policy. No one reads the fine print; you’re just relieved that you don’t have to pay any more on your insurance. Unbeknownst to you, FBN’s policy has a Prior Works Exclusion, which is in part why it’s so “affordable.”
2016 rolls around and you get a call from the owner of the house whose plumbing system you installed last year. They let you know that the pipes running through the wall from the upstairs bathroom burst causing damage to the wall itself, the flooring, and all the living room furniture, including shorting the TV. The damage is about $30,000.
You’re upset, but have peace of mind because you’re insured and always have been. So you call FBN and report the loss. The claims adjusters asks a peculiar question, “When did you complete this plumbing project?” You’re not sure why it matters, but you tell him, “2014.” “Mmmmhmmm” is all you get from the claims adjuster, and then he hangs up. The next day you get a call from your claims adjuster and he tells you, “I’m sorry, but since you completed the project prior to getting insured with us, there’s no coverage. Please refer to the Prior Works Exclusion.”
You’re in disbelief and you call ABC to cover all your bases. Maybe they would cover you. After all, that’s who was insuring you when you installed the plumbing system. So you call them up and…. you get no coverage from ABC either, although the reason is different; the damage occurred in 2016 and ABC’s policy ended in 2015. ABC only covers damage that occurs during the coverage period. ABC tells you to try your new insurer FBN. (Facepalm!).
By the way, this exposes a big misconception about how insurance policies work. It doesn’t matter if you had insurance when you installed the plumbing. It only matters when the damage occurred. But back to our story…
It’s a Shakespearean Tragedy. Even though you were insured at the time of installing the plumbing and at the time of the damage: you have no coverage from either company.
And to add some Umph to this story: it’s all true. This is a true story that happened with one of my clients. The only differences are 1) the real client wasn’t a plumbing contractor (I changed the operations to protect his anonymity) and 2) I read the fine print and warned him about the Prior Works Exclusion, explaining what would happen if a claim occurred, and offered him a policy without a Prior Works Exclusion. Despite the warning, he opted for the lesser priced option with FBN, and the worst thing that could happen did happen.
Moral of the story: don’t get a Prior Works Exclusion!