Understanding Contractors Professional
Liability Insurance

September 9, 2013 – Scottsdale, Arizona

In developing this month’s PJO Arizona Blog, the idea for this article came to me by talking with several of my contractor clients when working on their renewals. In discussing a client’s needs for the coming year, the subject of professional liability came up when I asked a contractor who was starting to build fifteen new custom homes on some land he owned, “Who is designing these homes?” The answer turned out to be that he was designing the homes. I then explained to him that his General Liability Insurance Policy would not cover any liability claims arising out of his activities designing these homes. After discussing this, I also informed him that there was also the possibility of a claim being denied on his General Liability policy because he had designed the homes and he was also acting as the General Contractor. We quickly found him a Contractors Professional Liability policy from PJO Brokerage to provide proper coverage for both sides of his operation.

This type of specialized liability insurance dates back to the mid 1990s when it was developed specifically to deal with the contractor’s liability for their involvement in the design errors or omissions. When contractors start to do more in the design-build area, this type of work can seriously increase their professional liability exposure and having proper insurance coverage can help in providing coverage for their design liability exposures including direct design liability. In this day and age, with contractors performing more design work that, in previous years, was almost exclusively done by design firms and architects means that contractors today are assuming more risk than their current General Liability Policies will cover if there is a claim filed concerning the design and drawing of plans. To fully understand the reasons you need professional liability insurance, it is very important that you understand what your commercial general liability policy does not cover.

Even in the case where a professional liability exclusion is not added to your General Liability Policy, your commercial general liability insurance policy will only respond to a liability claim arising out of tangible property damage or bodily injury; economic damages are not covered. Unfortunately, more than half of the claims that are filed against design professionals are for economic damages. If there is a claim filed for economic damages against your general liability policy, you will find yourself with no coverage under a typical commercial general liability policy, even if there was no specific professional liability exclusion. Almost every carrier that provides coverage for construction contractors will specifically exclude liability arising out of the professional services that are typically performed by architects and engineers; so by acquiring a Contractors’ Professional Liability Insurance policy, it can fill a great gap that is becoming more apparent to contractors and construction management firms in their insurance programs. To briefly review the Contractors Professional Liability Policy, this policy provides coverage for a claim that alleges from an act, error, or omission that arises from the performance of professional services. The important thing here is what defines a professional service.

Currently, there are two ways that describe professional services. The first one is to include a standard list of activities that will be covered in the policy. The second way would be to tailor the policy to fit exactly the professional services that the contractor will be performing. In any case, which ever policy you decide to go with, it is imperative that you, as the contractor, disclose any and all professional services that you will be performing, so there, hopefully, will be no surprises if a claim is filed. We, at PJO Insurance Brokerage, would welcome the opportunity to show you how acquiring a Scottsdale Contractor’s Professional Policy can protect your business.

Written By: Patrick O’Neill – Owner