There were clear lines of demarcation between design professionals and contractors in years past. Today, contractors are frequently involved in design-build or construction management contracts that incorporate some element of professional liability exposure into their operations. For example, a refrigeration contractor may recommend that an owner move cooling lines or utilize a different type of valve on a chemical line in a walk-in freezer. A general contractor may step into a construction management role, providing advice on contractual relationships between the project owner and a trade contractor that they are contracting with directly.
General liability insurance is designed to cover only bodily injury or property damage arising from the contractor’s negligence, not financial damages caused by negligent professional advice. Claims from owners for monetary damages arising from professional advice from contractors have become common. Contractors need professional liability insurance to have protection for financial damages caused by negligent professional advice.
Professional liability insurance protects professionals providing advice or services from allegations that their error or omission caused a financial loss to their client. Professional liability insurance policies do not cover bodily injury or property damage and should be viewed as complementary to a general liability policy.
The most recent Assurex Global 2023 Construction Benchmark Report found that 20 percent of those surveyed purchase some form of contractor’s professional liability insurance coverage, an increase from 13 percent in the previous survey. The contractor’s professional liability coverage can be purchased on a per-project basis or on a contractor’s entire work program. 89 percent of the firms purchasing contractor’s professional coverage purchase on a practice basis. Only 11 percent of the firms purchase this coverage for a specific project. That breakdown is consistent with prior years.
All professional liability insurance policies include a description or definition of what constitutes a professional service. It is critically important that the definition is broad enough to capture all the activities of the insured. Broader definitions are generally preferable to those that closely define the activities that they cover. Beware of potential limiting exclusions that the underwriter includes in their proposal.
The time to consider your firm’s need for contractor’s professional liability coverage is before a loss happens. There are a few questions that you should consider asking yourself in determining whether you should purchase contractor’s professional liability insurance coverage for your firm.
- How often do you provide meaningful professional advice to your customers? The more frequently you provide professional advice, the greater your need for this insurance coverage.
- To what extent do you perform design-build projects? If your firm is frequently involved in design-build projects, the possibility of someone in your firm providing meaningful advice to an owner increases.
- To what extent do you work as a construction manager? Construction management implies a greater exposure to liability for financial losses to your customers than general or other types of construction.
- Do your contracts require you to carry contractor’s professional liability coverage?
The purchase of contractor’s professional liability insurance has become more common as the lines between construction activities and professional advice have become less well defined. Your decision should be based on your own evaluation of your exposures, made in concert with your insurance professional.