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In high-risk industries like construction, real estate development, and general contracting, operational exposure doesn’t just stem from accidents, it stems from legal liabilities. One of the most financially devastating liabilities facing employers today is the action over claim: a lawsuit that can render even the most comprehensive general liability policy ineffective if not properly structured. In fact, according to data from the Insurance Information Institute (III), legal liabilities now account for over 40% of total claim costs in the construction sector, with action over claims being one of the fastest-growing sources of third-party litigation.
These lawsuits are particularly dangerous due to widespread policy exclusions that leave businesses financially exposed despite maintaining insurance. We at Insure Your Company work closely with contractors, project owners, and risk managers to ensure these exposures are fully addressed through tailored action over coverage insurance that aligns with operational risk and legal obligations. Let’s break it down in real-world terms and show why every contractor and employer must pay close attention.
An action over claim arises when a subcontractor’s employee, after collecting workers’ compensation from their employer, files a lawsuit against a third party, often the general contractor or project owner, alleging negligence. While workers’ comp prevents employees from suing their own employer, it doesn’t stop them from seeking damages from other responsible parties. In most cases, these claims are based on site safety violations, fall protection issues, or inadequate supervision.
Unfortunately, many general liability policies contain what’s known as an action over exclusion, meaning your insurer will not defend or indemnify your company in such lawsuits. Without general liability insurance with action over protection, your business becomes directly responsible for litigation expenses, damages, and settlements.
In high-litigation states like New York, California, and Illinois, actions over claims are especially common due to favorable labor laws for injured workers. According to industry research, over 35% of contractor-related claims exceeding $1 million involve some form of action over litigation. These are not isolated incidents, they’re systemic risks, and if your business is not protected, the financial consequences can be severe.
Imagine your company hires a roofing subcontractor for a mid-rise commercial project. A subcontractor’s employee falls due to improperly installed scaffolding. After receiving workers’ compensation, the employee files a third-party lawsuit against your company. Your insurance provider reviews your general liability policy and denies the claim based on an embedded action-over exclusion.
Suddenly, you’re facing legal fees, potential damages, and reputational damage without support from your carrier. Without employer liability coverage for subcontractor lawsuits, a single case can threaten your cash flow, derail active projects, and even risk permanent closure. At Insure Your Company, we’ve seen how these claims can disrupt operations, and we’ve helped our clients avoid them through proactive policy design.
Action over coverage insurance acts as a critical bridge between your general liability and the actual risks you face in subcontractor-heavy environments. When added to your insurance program, it provides legal defense and settlement coverage in the event a third-party worker sues you after an on-site injury, even when workers’ compensation has already been paid by their employer.
To be truly protected, your policy must not only carry action over protection, but must also be reviewed for hidden exclusions. Our experts at Insure Your Company specialize in identifying these red flags and ensuring your coverage matches your risk profile. This means eliminating ambiguous language, aligning policy limits with your exposure, and customizing terms to comply with local labor law.
If your company engages subcontractors or hosts third-party labor on job sites, you are at risk. This includes general contractors, electrical and plumbing firms, developers, HVAC contractors, real estate asset managers, and engineering firms. Even white-collar firms overseeing field projects can be held liable under third-party action over statutes.
Yet most businesses assume their general liability and workers’ comp policies offer sufficient protection. This is a dangerous misconception. A recent NAHB study found that only 28% of small construction firms had reviewed their policies for action over exclusions in the past year. That leaves thousands of businesses vulnerable to uncovered losses.
At Insure Your Company, we believe in risk prevention through education and strategic policy design. We don’t just sell policies to structure your insurance program to reflect the legal and financial realities you face every day.
Insure Your Company understands the legal environment in which our clients operate, particularly those working under the pressures of compliance, project deadlines, and subcontractor coordination. We work directly with construction companies, developers, and small-to-medium-sized businesses to provide fully customized insurance solutions that include strong claims protection.
Our services extend beyond policy placement to conduct in-depth policy audits, identify any action over exclusion in general liability insurance, and make tailored recommendations based on your subcontracting structure, jurisdictional exposure, and client requirements. Our team has extensive experience navigating complex claims and developing insurance strategies that reduce risk while maximizing legal defensibility.
Our dedication to client protection is why more contractors and employers choose us as their long-term insurance partner.
If your current insurance provider hasn’t mentioned action over coverage or if you’re unsure whether you’re covered, you’re already exposed. In today’s labor and litigation environment, relying on boilerplate general liability language is a serious operational risk. As subcontractor relationships become more complex, the chance of a third-party lawsuit increases, and without the right protection, your business could be left vulnerable. Insure Your Company, we help you identify your real exposure and implement policies that stand up to real-world claims. We provide not just insurance but assurance that your business is protected. Schedule a Consultation with Our Experts. Visit InsureYourCompany.com to request a policy review or speak directly with one of our risk management advisors.
Q. What is action over insurance coverage? A. Action over insurance coverage shields firms from workers’ compensation lawsuits by subcontractors’ employees. Legal fees, medical bills, and settlements are covered.
Q. Why is action over coverage important for contractors? A. Third-party subcontractor harm lawsuits threaten contractors. Action over coverage fills gaps in general liability insurance, protecting enterprises financially and legally.
Q. Who needs action over coverage insurance? A. To reduce risk, general contractors, developers, electrical or plumbing firms, and real estate asset managers should have action over coverage insurance.
Q. What does action over insurance cover? A. Even if workers’ compensation is paid, insurance action covers legal fees, medical expenditures, and settlements if a subcontractor’s injured employee sues your business.
Q. Why should contractors get action over insurance? A. To cover legal costs and damages from third-party litigation over subcontractor injuries, contractors need insurance.
Q. Is action over insurance required for businesses working with subcontractors? A. Yes, businesses that hire subcontractors should seek insurance to avoid financial risks and lawsuits over subcontractor injuries on the job.
We believe in supporting our clients through every step of the insurance process. From choosing the right coverage to filing a claim, we are here to offer guidance and support. Request a free quote today and get coverage that meets your unique needs.
