Navigating Performance Bonds, Subcontractor Default, and CGL Coverage for Defective Workmanship and Property Damage

CGL insurance and performance bonds are two common financial risk mitigation tools in construction projects. While there are some similarities, insurance and surety bonds cover very different risks. The lines between CGL coverage and performance bonds often become blurred when there are defective workmanship claims due to a contractor’s default or nonperformance or property damaged at a project by a contractor.

SDI can be a viable alternative to performance bonds, depending on the size and scope of the project. SDI policies are purchased by the project manager and obligate the insurer to reimburse costs incurred because of subcontractor default. SDI policies often have lower premium costs than surety bonds and tend to give the prime contractor more flexibility in resolving subcontractor defaults.

Practitioners representing project owners, contractors, insurers or sureties must have a thorough understanding of the differences between CGL policies, performance bonds and subcontractor default insurance, the protections provided, when each comes into play, and where they overlap.

Listen as our authoritative panel of construction practitioners explains the distinctions between CGL insurance and performance bonds and SDI, where there is potential overlap and interplay between CGL policies and performance bonds for defective workmanship and property damages, and best practices for minimizing risk and maximizing coverage.

1. Performance bonds
2. Subcontractor default insurance
3. CGL coverage
4. Faulty workmanship
5. Property damage
6. Owner/contractor vs. insurer/surety perspective

The panel will review these and other key issues:

• What are the distinctions between CGL policies and surety bonds?
• Where might performance bonds and CGL policies overlap in the context of a contractor’s default or other nonperformance?
• How has the recent expansion of CGL coverage for defective workmanship led to confusion with coverage under a performance bond?
• What are the key advantages of SDI, and what are the drawbacks that must be considered?
• How does SDI differ from traditional performance bonds?