Do Contractors Need Professional Liability Insurance?
With the evolution from the design-bid-build approach to construction to more collaborative delivery models (integrated project delivery, design-build, delegated design, design-assist), all or portions of the risk for negligent act, errors or omissions in design have shifted to the construction manager and its subcontractors.
General liability policies carried by contractors may exclude all coverage for professional liability, or they may provide limited coverage if the design arises out of means or methods of construction. However, even if a contractor’s general liability insurance provides limited coverage, it typically insures against claims for bodily injury, property damage, personal injury or property damage. It does not provide protection of economic damages brought by an owner.
Contractors professional liability (CPrL) insurance fills the gap by providing protection against damages arising out of the negligent acts, errors or omissions in the performance of professional services rendered by the contractor.
There is no standard policy form, so underwriters work with clients to craft coverage that addresses their unique exposures to loss, specifically detailing their operations in the definition of “professional services” and adding coverage to protect against inadequate professional liability coverages provided by subcontractors or subcontracted design professionals. Leading insurers also craft policies to protect clients with “rectification” or “remediation” coverage, which provides protection if a design error leads to correction of the work during the construction process.
These policies are often combined with contractors’ pollution liability coverage insuring against third-party bodily injury or property damage claims arising from construction operations. It’s also possible to include coverage for clean-up expense and liabilities arising from the transportation of pollutants and liabilities arising from contractors’ legal liability arising out of the disposal of contaminants at non-owned disposal sites.
So, do you need professional liability insurance? Even if you don’t stamp drawings, the answer is yes. Contract privity between you and an upstream party will dictate a potential lawsuit comes to you, requiring you to incur legal costs and damages, regardless of your ability to obtain protection from any downstream party. It’s important to sit down with your risk advisor to determine what is best for your partners, project and needs.
The design and construction team at Oswald Companies represents more than 600 architects and engineers and about 250 contractors. Our dedicated team of over two dozen professionals, one of the largest in the region, is adept at understanding and helping our clients manage these risks through contract reviews, education and insurance coverage structure.
This article originally appeared on bizjournals.com.
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