When a flooring contractor is sued over a job, the general liability insurer usually hires and pays the defense lawyer, as long as the suit seeks damages the policy may cover. Under the standard form, that defense is paid on top of the limit, it ends once the limit is spent, and how you report decides whether it starts.
What the defense promise in a general liability policy says
The defense promise is one sentence in the insuring agreement, and it gives the insurer a right as well as a duty. Under the standard ISO form as commonly written, the Commercial General Liability Coverage Form (CG 00 01 04 13, the edition we read), Coverage A says: “We will have the right and duty to defend the insured against any ‘suit’ seeking those damages.” Those damages are the bodily injury and property damage the policy pays for.
The same paragraph sets the edge: “However, we will have no duty to defend the insured against any ‘suit’ seeking damages for ‘bodily injury’ or ‘property damage’ to which this insurance does not apply.” Coverage B carries a matching promise, covered in personal and advertising injury for flooring contractors.
The word right matters as much as the word duty. The insurer runs the defense and assigns counsel, and the form adds, “We may, at our discretion, investigate any ‘occurrence’ and settle any claim or ‘suit’ that may result.” You do not normally pick the lawyer or veto a settlement.
Which parts of a failed-floor claim the policy pays is a separate question, answered on the general liability page and in the care, custody or control exclusion for flooring contractors. This post is about who pays the lawyer meanwhile.
A suit, not a demand letter: when the promise starts
The duty to defend attaches to a suit, and the form defines that word closely enough that the paperwork matters. “‘Suit’ means a civil proceeding in which damages because of ‘bodily injury’, ‘property damage’ or ‘personal and advertising injury’ to which this insurance applies are alleged.”
Arbitration counts in one shape: “An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent”. Mediation and other alternative dispute resolution count only when the insured takes part with the insurer’s consent.
A homeowner’s demand letter is a claim, not yet a suit. The insurer can still investigate and settle it, but the defense promise is written around the suit, so the order of events matters. The residential flooring contractor insurance page covers the state rules behind homeowner contracts. If a homeowner asks you to mediate, report the demand and let the insurer answer before you agree.
If the floor went in years ago, which policy to notify is the subject of occurrence vs claims-made policies for flooring contractors.
Who pays the lawyer, and why the limit stays whole
Under the standard form, the insurer pays for the defense under Supplementary Payments, and those payments sit on top of the limit. The section opens: “We will pay, with respect to any claim we investigate or settle, or any ‘suit’ against an insured we defend:” The first item is short: “All expenses we incur.” That includes the lawyer the insurer assigns.
Your own costs get some help. The form pays “All reasonable expenses incurred by the insured at our request to assist us in the investigation or defense of the claim or ‘suit’, including actual loss of earnings”, up to a daily cap printed in the form. It does not pay the other side’s legal bills: “However, these payments do not include attorneys’ fees or attorneys’ expenses taxed against the insured.”
Then comes the sentence that matters most: “These payments will not reduce the limits of insurance.” A long defense does not shrink the money available to settle. Settlements and judgments are what the limit is for, and they use it up.
Not every policy works this way. In the surplus lines section of its general liability insurance guide, the Texas Department of Insurance warns: “Defense costs could be included within the limit of liability, and prior acts or run-off coverage may not be available.” It adds: “Policy forms may be more restrictive than those that are subject to TDI review.” Check whether your defense costs reduce the limit.
Your part: report in writing, send the papers, cooperate
The insurer can only defend what it knows about, and the form puts that burden on you. The first duty comes before any suit: “You must see to it that we are notified as soon as practicable of an ‘occurrence’ or an offense which may result in a claim.” A ceiling stain below a new tile bathroom is worth reporting before anyone threatens to sue.
Once a claim or suit arrives, the duties sharpen. “You must see to it that we receive written notice of the claim or ‘suit’ as soon as practicable.” You must also “Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or ‘suit’;” and “Cooperate with us in the investigation or settlement of the claim or defense against the ‘suit’; and” provide the records it asks for.
The last condition is the easiest to break, because fixing a customer’s floor feels like good service: “No insured will, except at that insured’s own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.” A promise to replace the floor, made to calm a homeowner down, is an obligation the policy may not repay. What late notice or a side deal costs you depends on the state and the facts.
Reservation of rights: defended, but not yet agreed to pay
A reservation of rights letter means the insurer is defending you while keeping its coverage questions open; it is not a denial. New York’s insurance regulator, in a legal opinion on reservation of rights, describes a letter served “to preserve the insurer’s right to affirm or deny coverage for the claims made in a third party complaint, against which the insurer agrees to defend the insured.”
A second opinion from the same regulator adds: “Reservation of rights letters are usually not effective as disclaimer letters.” The first names the tension: the duty to defend “may create a conflict, which is most obvious after the insurer issues a ‘reservation of rights’ letter in which it attempts to protect itself from liability while fulfilling its duty to defend its insured.”
A homeowner suit often mixes the cost of replacing the floor with damage to other property. The form does not say how a suit pleading both covered and uncovered claims is handled; the answer varies by state, and the complaint’s allegations matter.
Real-World Scenario: A homeowner sues a hardwood installer after a new floor cups, asking for a new floor and for kitchen cabinets the swelling boards pushed out of line. The installer had offered on the phone to redo the floor, then remembered the policy and sent the complaint in. The insurer agreed to defend under a reservation of rights, naming the replacement of the installer’s own work as the open question. The installer read the letter with his own attorney, stopped making promises and let assigned counsel answer the suit.
Choosing your own lawyer: where Florida and California step in
Under the standard form, the insurer picks defense counsel. Some states change that once a reservation of rights creates a conflict; these two are examples, not a national rule.
Florida’s claims-administration statute says “A liability insurer shall not be permitted to deny coverage based on a particular coverage defense unless:” it gives “written notice of reservation of rights to assert a coverage defense”, and then refuses to defend, obtains a nonwaiver agreement after full disclosure, or “Retains independent counsel which is mutually agreeable to the parties.” Florida contractors should read any reservation letter against that list.
California’s independent-counsel statute goes further: “the insurer shall provide independent counsel to represent the insured unless, at the time the insured is informed that a possible conflict may arise or does exist, the insured expressly waives, in writing, the right to independent counsel.” A conflict may exist “when an insurer reserves its rights on a given issue and the outcome of that coverage issue can be controlled by counsel first retained by the insurer”, but not merely because punitive damages are alleged or the suit exceeds the limits. California contractors should ask before signing any waiver.
Elsewhere, the New York regulator’s advice fits: “Because these issues are complex and fact-specific, the Department advises the inquirer to seek advice from the inquirer’s own attorney regarding the specific facts of this situation.”
When the general contractor asks your insurer to defend it
A general contractor sued over your floor will often tender its defense to your insurer, and the form can pay its lawyer three ways. Which one applies decides whether your limit shrinks.
The first is additional insured status. On the Additional Insured – Owners, Lessees Or Contractors – Scheduled Person Or Organization endorsement (CG 20 10 04 13, the edition we read), the general contractor becomes an insured for liability “caused, in whole or in part, by” your acts or omissions, so the defense promise reaches it, though no further than the contract requires. A separate post, who is an insured on a flooring contractor’s policy, covers who counts.
The second is defending your indemnitee in the same suit: “If we defend an insured against a ‘suit’ and an indemnitee of the insured is also named as a party to the ‘suit’, we will defend that indemnitee if all of the following conditions are met:” Among them, the subcontract must be an insured contract that also assumes the defense, “no conflict appears to exist between the interests of the insured and the interests of the indemnitee;” and both agree to the same counsel. Those payments “will not reduce the limits of insurance.”
The third runs through contractual liability, where the indemnitee’s “reasonable attorneys’ fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages”, so they use your limit. The hold-harmless clause itself is explained on the commercial flooring contractor insurance page.
When the duty ends, and what sits above it
The duty to defend ends when the limit is used up, not when a suit gets expensive. The insuring agreement says: “Our right and duty to defend ends when we have used up the applicable limit of insurance in the payment of judgments or settlements under Coverages A or B or medical expenses under Coverage C.” How medical payments draw on that limit is in medical payments coverage for flooring contractors.
Where your policy is excess, as when you are also covered on someone else’s policy, “we will have no duty under Coverages A or B to defend the insured against any ‘suit’ if any other insurer has a duty to defend the insured against that ‘suit’.” If no other insurer defends, yours will.
An umbrella is the next layer. On the Commercial Liability Umbrella Coverage Form (CU 00 01 04 13, the edition we read), the umbrella has the duty to defend “when the ‘underlying insurance’ does not provide coverage or the limits of ‘underlying insurance’ have been exhausted.” Before that, it may only take part. The umbrella liability page explains that layer.
When the insurer’s handling falls short
State rules set standards for claim handling. Washington’s unfair claims settlement practices rule lists among unfair practices “Misrepresenting pertinent facts or insurance policy provisions” and “Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement.”
If an insurer declines to defend you, ask for the policy basis in writing. Washington is one state’s wording; other states have their own rules and their own regulator to hear a complaint.
The defense promise is one part of the program on the flooring contractor insurance hub. If a suit, a demand letter or a reservation of rights letter has arrived, send us the papers and your policy.