What is contractor professional liability insurance?
Contractor professional liability insurance, sometimes called contractor errors and omissions insurance, is designed to address certain covered allegations arising from professional services.
A claim may allege that a contractor’s design, advice, calculation, specification, programming, coordination or other professional service caused financial loss, delay, rework or damage.
Coverage depends on how the policy defines professional services. Every professional activity the contractor performs or assumes responsibility for should be disclosed.
Why general liability may not be enough
General liability insurance generally focuses on covered bodily injury, property damage, personal injury and advertising injury. General liability policies may exclude or restrict professional services.
A professional liability claim may involve economic loss without bodily injury or physical property damage. Examples could include:
- Incorrect specifications requiring costly rework
- A programming error that causes a system to malfunction
- An alleged design error that delays a project
- Improper professional advice
- Failure to identify a coordination conflict
- An allegation that construction-management services were negligent
Learn more on the Contractor E&O vs. General Liability page .
Contractors who may have professional exposure
Professional liability is not limited to architects and engineers. Contractors may have professional exposure when they provide or assume responsibility for:
- Design-build services
- Value engineering
- Construction management
- Project scheduling or coordination
- Alarm-system design or programming
- Fire-protection or sprinkler-system design
- HVAC system design or load calculations
- Electrical system design
- Low-voltage and communications system design
- Energy-efficiency consulting
- Environmental consulting
- Shop drawings or delegated design
- Selection or specification of equipment
Even when a third-party professional performs the design, the contractor may retain contractual responsibility for that work.
Design-build contractors
Design-build projects combine construction and design responsibility under one contract. The contractor may employ design professionals, subcontract design work or assume responsibility for services performed by others.
Underwriters may ask:
- What percentage of revenue comes from design-build work
- Whether design professionals are employees or consultants
- Professional qualifications and licenses
- How subconsultants are selected
- What insurance subconsultants maintain
- Whether written contracts include indemnification provisions
- The largest project and professional fee
- Types of projects and structures designed
Professional services performed by subcontractors
Hiring an architect, engineer or other consultant does not necessarily remove the contractor’s professional exposure. The contractor may be accused of negligent selection, coordination or supervision, or may assume responsibility under the prime contract.
Contractors should maintain:
- Written professional-services agreements
- Certificates of professional liability insurance
- Appropriate professional liability limits
- Evidence of current licensing where applicable
- Clear scopes of service
- Contractual risk-transfer provisions reviewed by counsel
A consultant’s professional liability policy does not automatically protect the contractor.
Claims-made coverage
Professional liability is commonly written on a claims-made basis. Coverage generally depends on when the professional service occurred, when the claim was first made and when it was reported.
Contractors should understand:
- The retroactive date
- The policy period
- The definition of a claim
- Claim-reporting requirements
- Prior-knowledge provisions
- Pending and prior litigation exclusions
- Extended reporting options
Allowing a claims-made policy to lapse or moving coverage without preserving the retroactive date can create a gap for earlier work.
Retroactive dates and prior acts
A retroactive date may limit coverage to professional services performed on or after the date shown. A policy with full prior-acts coverage may not contain a restrictive retroactive date, subject to underwriting and policy terms.
Contractors should provide complete information about prior coverage, known circumstances, claims and the date professional services first began.
Defense costs and policy limits
Some professional liability policies include defense expenses within the policy limit. This means legal expenses can reduce the amount remaining to pay a covered settlement or judgment.
Review:
- Per-claim and aggregate limits
- Deductible or self-insured retention
- Whether defense costs reduce the limit
- Consent-to-settle provisions
- Choice of counsel
- Supplemental defense limits when available
Contractual liability and elevated standards
Contracts may require a contractor to accept responsibilities beyond the ordinary professional standard of care. Examples may include guarantees, warranties, broad indemnification or commitments to produce a particular result.
Professional liability insurance may not cover every obligation assumed solely through contract. Contracts should be reviewed by qualified legal counsel before they are signed.
Ford Agency can review written insurance requirements but does not provide legal advice or interpret contractual obligations.
Pollution and professional services can overlap
Some claims involve both professional decisions and environmental conditions. Examples might include alleged errors in selecting materials, designing containment, evaluating site conditions or planning remediation work.
Contractors with environmental exposure should coordinate professional liability with contractors pollution liability insurance .
Common limitations to review
Contractor professional liability policies may contain limitations or exclusions involving:
- Known claims or circumstances
- Services performed before the retroactive date
- Express warranties or guarantees
- Cost estimates
- Project delays
- Faulty workmanship
- Pollution
- Cyber or technology incidents
- Specific project types
- Residential or condominium work
- Services performed by unqualified personnel
- Contractual obligations beyond common-law liability
Policy forms vary significantly. The professional-services definition and exclusions deserve as much attention as the premium.
What affects professional liability pricing?
Eligibility and pricing may be influenced by:
- Professional services performed
- Annual revenue and professional-service revenue
- Project types
- Largest project and professional fee
- Design-build exposure
- Use of architects, engineers and subconsultants
- Professional qualifications
- Contract language
- Quality-control procedures
- Prior claims or known circumstances
- Requested limits and retention
What to send Ford Agency
Useful information for a contractor professional liability review includes:
- Detailed description of professional services
- Percentage of revenue from each professional service
- Design-build revenue and project details
- Professional qualifications and licenses
- Employee and subconsultant responsibilities
- Sample contracts and scopes of service
- Largest completed, current and anticipated projects
- Quality-control and document-review procedures
- Current professional liability policy
- Retroactive date and prior-acts information
- Currently valued loss runs when requested
- Known circumstances that could result in a claim