The instances of contractors being pulled into professional liability claims is a significant risk.
The line between designer and contractor used to be clear. The design firm designed, and the contractor built.
Today, however, the line has become blurred. Contractors are often asked to hire and manage the design firm, contribute to the design process or make design changes in the field. Some contractors have designers on staff. What many contractors don’t realize is that this merging of roles has placed them at risk.
When a contractor firm becomes part of the design process, it renders “professional” services. Its commercial general liability (CGL) insurance policy typically excludes professional liability. The design firm’s professional liability insurer will not add the contractor as an additional insured.
Even if a contractor’s CGL policy were extended to provide some coverage, it would provide protection only for bodily injury and property damage. Claims for things such as design failure or the owner’s lost revenue due to poor or improper design would not be covered.
The likelihood of a contractor being pulled into a professional liability claim is a significant risk when an issue arises. Therefore, many contracts now require contractors to secure professional liability coverage. Considering the expense to defend or be removed from a legal action, the cost to secure coverage for most contractors is of small significance compared to the rest of the commercial insurance cost.
Contractors should consider the following when taking on any project:
1. What are you providing? If you are providing only hands-on construction services, you likely have little or no professional liability exposure. However, if you contribute to any design discussion or are involved in hiring third-party design firms, you should speak with your insurance broker.
2. What does your contract require? You may be obligated to secure contractors professional liability coverage.
To learn more about this and other unique, sometimes complicated risks construction industry professionals face and how to manage and insure them, listen to the “Construction Risk and Insurance Roundtable” podcast episodes.
The above information does not constitute advice. Always contact your insurance broker or trusted advisor for insurance-related questions.