The lines of responsibility between design professionals and contractors are continuing to blur, which means that more & more, contractors are assuming nontraditional risks that their standard insurance policies were never designed to address.
While Professional Liability Insurance has often been reserved for design professionals such as architects or engineers, it's quickly becoming just as important for contractors.
Contractors Professional Liability Insurance (CPLI) protects contractors from claims arising from negligent errors or omissions that occur while they are performing a professional service.
What does Contractors Professional Liability Insurance cover?
It’s a common belief that an error or omission made during the design-build process is covered under a typical Commercial General Liability (CGL) policy.
The fact is, nearly every General Liability policy provided in the insurance market specifically excludes coverage for claims arising from any type of professional liability exposure.
Many businesses that need General Liability coverage to protect their business have no need for Professional Liability coverage. If the General Liability policy provided Professional Liability coverage for everyone, many business would end up paying for coverage they don’t need or want.
The solution is to have separate policies for Commercial General Liability(CGL) and Professional Liability. With this setup, contractors that need just CGL coverage can purchase that policy. And those contractors that are taking on ‘professional’ types of exposures can purchase both policies to adequately protect their business.
There are many examples where general contracting situations can possibly generate a professional liability claim. Consider this very common scenario:
Job site modification of plans – many contractors modify or tweak plans during their actual work. While these changes may benefit the client, if any of these design changes lead to a claim, the modifications might be construed as professional services.
Result: Contractors Professional Liability Insurance would be needed.
CPLI fills the coverage gap by protecting contractors from claims made due to an error or omission that occurred while they were performing a professional service.
Examples of situations in which a CPLI claim may arise include:
- Improper design of a concrete floor that cracks under the weight of a company’s equipment
- Installation of a heating and cooling system found to be incapable of properly ventilating a building
- A design defect that prohibits a building from being certified
- A flaw in a building’s structure that causes a business interruption in order to have the flaw repaired
Even if a contractor subcontracts the design work, and has the proper indemnification language in place to protect the contractor from any liability, CPLI is still a good coverage to have for three reasons:
- The indemnification, also known as a hold harmless clause (or provision), may not be enforceable.
- If the design company went out of business, or no longer carries Professional Liability coverage when the claim is made, the contractor may be out of luck and held responsible for the damages.
- If the design professional’s policy limits are too low to cover the claim, or they’ve been completely exhausted from payment of a previous claim, the contractor may be found liable.
Contractor Professional Liability Insurance specifics
CPLI is usually written on a claims-made basis, meaning the policy must be active when a professional liability claim is made in order for coverage to apply. Because of this, CPLI should be carried for a long-term period to ensure there is no possibility of a claim that’s made years after the project is complete being excluded.
The policy may be tailored to include only specific types of work performed by the design professional. Alternatively, the policy can be made broader by including a list of covered activities.
As with any “all-risk” coverage, there are certain types of claims that are excluded under a typical CPLI policy. Typical exclusions include:
- Failure to complete a project on time
- Deliberate noncompliance with laws and regulations
- Performance guarantees (warranties)
- Ownership, use or maintenance of mobile vehicles, such as automobiles, watercraft or aircraft
- Products made by the insured
- Faulty workmanship (this is considered a construction risk rather than a design risk)
- Governmental actions/war
- Contractual liability
Even with an extremely basic project, there’s still a chance for jobsite modifications that could ultimately lead to a Professional Liability claim.
Before any project begins, make sure all interested parties are satisfied that the professional risks have been adequately addressed and properly insured.
The fact is, Contractors Professional Liability Insurance is becoming common for nearly all types of contractors, from the general down to the sub-subcontractors. Very often, the bid specification requirements now require at least a minimal amount of CPLI coverage.
Please note, the underwriting process for CPLI coverage can be somewhat lengthy, and insurance companies often have many questions about the work you’re performing. So, before the perfect job comes along that happens to require that you have CPLI coverage, you might consider looking into this coverage now.
For more information on Contractors Professional Liability Insurance, contact one of our Licensed Insurance Advisors. Or, if you need coverage immediately, Request a Proposal and we’ll get to work right away.