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Why Design-Build Contractors Need Professional Liability Insurance


Why Design-Build Contractors Need Professional Liability InsuranceProfessional Liability Exposures Not Covered under General Liability

In recent years, we have seen increasingly more general contractors responsible for design-build tasks on projects, whether they undertake this work in-house or subcontract it out, leaving them exposed to potential professional liability claims. Add to this changes in standard construction contracts on how design responsibilities and risk are allocated, and you find contractors unaware that they may be exposed to errors and omissions arising out of the professional services provided in a project.

The first thing a general contractor has to realize is that his Commercial General Liability (CGL) policy will not provide coverage for professional liability exposures. Coverage in most standard policies is excluded by endorsement. Even if professional liability is not excluded, a CGL policy responds only to liability arising out of either bodily injury or tangible property damage, with economic damages not covered. And the fact is that more than 50% of the claims against design professionals are for economic damages. If a claim were made for monetary damages, there would be no coverage under the policy with or without the professional liability exclusion.

In addition, even if a general contractor jobs out all design work and believes that by obtaining certificates of insurance from each subcontractor showing they’re carrying Professional Liability insurance, also known as Errors & Omissions (E&O) coverage, along with an executed indemnity/hold harmless agreement for any liability arising out of his negligent acts, errors or emissions, there are still several issues. First, hold harmless provisions can be declared unenforceable. Second, the design firm may be out of business and/or may have dropped its professional liability insurance when the claim is made. This is a problem, as professional liability insurance policies are written on a claims-made basis, and coverage must be in force at the time a claim is made to trigger coverage. Also, the design professional’s insurance policy applies only to the design professional’s negligent acts or omissions and not to joint liability shared between the design professional and the general contractor. Moreover, the design professional’s policy limits may be inadequate or may have been exhausted by other claims.

Further adding to a contractor’s E&O risk is that some firms may have direct professional liability exposures. For example, they may employ in-house design professionals, or they may provide construction management advisory type services that are consultative in nature.

The solution in addressing a contractor’s professional liability exposure is to secure a policy specifically designed for this sector. Contractors Professional Liability policies are available by several different insurance companies and provide direct and contingent liability coverage. The policy provides coverage for claims a result of an actual or alleged act, error or omission arising out of the performance of a professional service. The type of policy purchased should be reviewed with an insurance professional to fully understand what is covered and what may be excluded.  These are not standard policies and can be designed for each insured contractor according to the nature of the work being performed.

At Axis Insurance Services, we specialize in providing professionals with E&O insurance and can provide our expertise in selecting a Contractors Professional Liability policy that fits your needs. Just give us a call at (877) 787-5258 for an evaluation of your insurance coverage and what is needed.

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Blogged on: December 24, 2014 by Mike Smith
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