SDV Insights

Contractor professional liability coverage insures against liability that derives from the technical aspects of a construction project – including architectural, engineering, and survey work. It is especially valuable in circumstances where the contractor has design responsibility as part of its project scope, such as in the case of “design build” projects or where “design assist” work is undertaken.

Accordingly, in the construction context, professional liability insurance, also referred to as errors and omissions (E&O) insurance, is not only important for architect, engineering, and design professionals to maintain, but it can also be a wise investment for construction contractors. This article will briefly discuss what this type of insurance covers and when you should contact an insurance coverage attorney.

Table of Contents

• What is contractor professional liability insurance?
• What claims does contractor professional liability insurance cover?
• What claims aren’t covered by professional liability insurance?
• When to contact a professional liability coverage attorney?

What is Contractor Professional Liability Insurance?
Contractor professional liability insurance protects a contractor against errors and omissions in the rendering of professional services that occur at, or in connection with, a construction project. It is particularly ideal for contractors who offer in-house design services or who retain third-party design and building vendors, such as architects, engineers, technical sub-contractors, surveyors, and other design specialists.

Any contractor who undertakes construction management and design/engineering responsibilities should purchase professional liability insurance, in addition to general liability insurance coverage. It is a mistake to assume that professional liability risk is covered under a general liability policy, even where the general liability policy purchased contains broad exceptions to the professional liability exclusions.

Contractor professional liability insurance differs from a general liability policy in several respects. Most notably, general liability insurance covers liability for damages because of bodily injury or property damage, while professional liability insurance covers liability for economic losses caused by professional errors (unlike general liability insurance, property damage or bodily injury is not required to trigger professional liability coverage). The two products often complement each other, as it’s common for a contractor’s liability to involve both professional and general negligence.

What Claims Does Contractor Professional Liability Insurance Cover?
Most contractor E&O policies cover the following types of claims:

• In-house building design service errors or omissions, such as architectural and engineering services offered by the general contractor;
• Design and building service mistakes made by third-parties, such as architects, engineers, and other building professionals hired by the general contractor; and
• Construction management errors.

In addition, Contractors Professional Liability insurance is often packaged with Protective Indemnity insurance, which covers the contractor for damages it suffers as a consequence of professional errors committed by one of its design/engineering subcontractors, where such subcontractors have insufficient professional liability insurance to fully cover the contractor’s loss. Collectively, the combined coverages are called a Contractor’s Protective Professional Indemnity (“CPPI”) policy.

Other coverages that are sometimes packaged with a Contractors Professional Liability policy include Rectification/Mitigation coverage (covering certain costs incurred to prevent or reduce damages from and identified design/engineering error), Cyber risk coverage and Media coverage.

What Claims Aren’t Covered by Professional Liability Insurance?
Typically, the standard Contractor Professional Liability Insurance policy will not cover the following claims:

• Mistakes made during the bidding process, either overbidding or underbidding;
• Time management issues;
• Construction Errors/Damage from Faulty Workmanship;
• Means and Methods Errors; and
• Bodily Injury.

Professional liability policies do vary, however, in terms of the specific risks of loss that are excluded. They also have differing deductible/self-insured retention requirements and limits. It is therefore important to read the policy carefully. Contractors should consider adding Contractors Professional Liability coverage to a comprehensive insurance program with other types of policies, which could cover bodily injury and property damage, among other claims.

When to Contact a Coverage Attorney?
Questions about the coverage afforded under a Contractors Professional Liability policy should be addressed with an insurance coverage attorney. The attorney can provide information about the scope of coverage afforded and give advice as to the key insurance requirements that the insured must comply with, such as the notice provisions. Of course, when a claim under such policy arises, a coverage attorney can also assist with the claim process and negotiate or litigate with the insurance company on the contractor’s behalf.

You should also speak with your insurance coverage lawyer whenever there is a potential claim brewing or an official claim made against your company. The sooner your coverage counsel is involved the better. Your attorney can immediately begin resolving the issue so the project can move forward.

Saxe Doernberger & Vita, P.C. Can Help
Making sure that your construction company has the proper insurance coverage is extremely important. Saxe Doernberger & Vita, P.C. can assist with addressing any questions you may have regarding your insurance needs, including questions related to your professional liability program.

For more information contact David G. Jordan at DJordan@sdvlaw.com.