A contractor does not need to call itself an architect or engineer to create a professional exposure. Recommending a system, preparing specifications, programming equipment or making technical decisions can create allegations that go beyond ordinary installation work.
What contractor general liability commonly addresses
Commercial general liability insurance commonly addresses certain covered claims involving bodily injury, property damage and personal or advertising injury arising from the contractor’s operations.
Examples can include allegations that:
- A visitor was injured at the contractor’s jobsite
- Installation work damaged a customer’s building
- Completed work later caused covered property damage
- A contractor accidentally damaged property belonging to another party
General liability coverage remains subject to policy definitions, exclusions, endorsements, limits and the facts of the claim. It is not a warranty covering every problem with a contractor’s work.
What contractor E&O commonly addresses
Contractor errors and omissions insurance, sometimes called contractor professional liability, may address covered allegations that a mistake in professional services caused a client or another party to suffer a loss.
Professional services can include activities such as:
- Design or design-assist services
- Preparing plans, specifications or calculations
- Selecting or recommending systems and equipment
- Programming alarm, control or automation systems
- Providing technical advice or consulting
- Value engineering
- Construction management or project coordination
- Delegating design responsibility to a subcontracted professional
The economic-loss difference
General liability policies commonly focus on bodily injury and property damage. A customer’s financial loss caused by an alleged professional error may not involve either one.
Contractor E&O may be designed to address certain covered economic-loss allegations arising from professional services, subject to the policy.
An electrician who accidentally damages a wall while installing wiring presents a different type of claim from an allegation that the electrician designed a system with inadequate capacity, requiring expensive redesign and replacement.
Design-build contractors can face both exposures
Design-build contractors accept responsibilities that can blur the line between construction and professional services. A claim might allege both defective physical work and an error in the design or technical recommendation.
Contractors should identify whether they:
- Create or modify plans
- Approve design decisions
- Select systems based on performance requirements
- Hire architects, engineers or other design professionals
- Assume design responsibility in their contracts
- Guarantee performance outcomes
These activities should be disclosed to the insurance agent and underwriter. Describing the company only as an installer can create problems if the actual contracts assign broader responsibilities.
Trades that may have professional exposures
Professional exposures are not limited to large general contractors. They can arise within many specialty trades.
- Electrical contractors: load calculations, system design and equipment selection
- HVAC contractors: system sizing, energy calculations and equipment recommendations
- Alarm contractors: system design, placement, programming and monitoring recommendations
- Fire-protection contractors: sprinkler design, hydraulic calculations and code-related specifications
- Low-voltage contractors: network, access-control, surveillance and communications design
- General contractors: design-build, value engineering and construction management
- Concrete or structural contractors: technical recommendations, mix specifications or delegated design
Professional-services exclusions
General liability policies may contain professional-services exclusions. These exclusions can limit coverage for claims arising from design, engineering, consulting, supervisory or other professional activities.
A contractor professional liability policy may address some of that exposure, but the professional-services definition must match what the contractor actually does.
The two policies should be reviewed together. A broad exclusion in one policy and a narrow definition in the other can leave an unintended gap.
Claims-made coverage and retroactive dates
Contractor E&O is often written on a claims-made basis. This means the timing of the claim and the timing of reporting can be critical.
A professional liability policy may also contain a retroactive date. Work performed before that date may not be eligible for coverage, even if the claim is first made during the current policy period.
Contractors should avoid allowing claims-made coverage to lapse without first understanding the consequences. Changing insurers can also require careful preservation of the retroactive date.
Subcontracted design work
Hiring an architect, engineer or consultant does not necessarily eliminate the contractor’s exposure. The customer may still bring a claim against the contractor that signed the main agreement or managed the design-build process.
Contractors using design professionals should consider:
- Written agreements defining each party’s responsibility
- Professional liability requirements for subconsultants
- Certificates or other evidence of professional coverage
- Contractual indemnification provisions reviewed by counsel
- Whether the contractor’s own policy covers subcontracted professional services
Technology and programming exposures
Modern contractors increasingly install connected systems. Alarm, access-control, HVAC, building automation and low-voltage contractors may configure software or program equipment as part of installation.
A claim alleging that equipment was physically damaged during installation may differ from a claim alleging that improper programming caused a system to fail, interrupted operations or created a financial loss.
Technology errors, cyber events and professional services may require separate or coordinated coverage depending on the operation.
Contract requirements do not guarantee coverage
A customer may require professional liability insurance with a particular limit or completed-project reporting period. Meeting the certificate requirement does not necessarily mean every contractual obligation is insured.
An insurance agent can help identify the coverage being requested, but legal counsel should review contract language involving design responsibility, indemnity, warranties or guarantees.
Questions to discuss with your agent
- Do you design or only install?
- Do you recommend equipment based on performance needs?
- Do you prepare plans, calculations or specifications?
- Do you program or configure installed systems?
- Do your contracts assign professional responsibility?
- Do you hire architects, engineers or consultants?
- Does the policy cover subcontracted professional services?
- What retroactive date applies?
- How and when must claims or circumstances be reported?
- Are defense expenses inside or outside the policy limit?
What to send Ford Agency
A detailed description of both construction and professional services helps identify appropriate coverage and markets.
- A complete description of every service provided
- Residential, commercial and industrial percentages
- Design-build and design-assist revenue
- Sample contracts and written insurance requirements
- Information about architects, engineers and consultants used
- Largest completed and anticipated projects
- Current general liability and professional liability policies
- Prior professional liability applications and loss history
Contractor E&O does not replace general liability, and general liability does not automatically cover professional mistakes. Contractors with both physical and professional exposures may need the policies coordinated as part of one insurance program.