Professional Liability 101


Contractors understand the need for General Liability insurance to protect against third-party bodily injury liability and property damage liability losses. Claims may involve a third party slipping and falling on your premises or a job site or your finished work causing bodily injury or property damage. When seeking bids on a project, a client will ask for proof of General Liability insurance.

CGL insurance primarily protects policyholders from losses associated with third-party liability claims arising out of a company's business operations. A typical CGL insurance policy covers claims for: third-party property damage and bodily injury associated with the insured's negligence in performing it's work or operations.  It does not cover claims for: professional errors; employee injuries; employee discrimination; or damage to the company's own business property.

Professional liability insurance is sometimes referred to as "malpractice" insurance or "errors and omissions" insurance.  Professional liability insurance protects against liability to third persons for losses caused by the insured's performance of professional services, and specifically includes intangible and economic losses (as contrasted with general liability insurance). There are usually exclusions for "bodily injury" or "property damage" claims (as these claims are covered by general liability insurance).

Professional Liability insurance may pay for legal costs and judgments/settlements (up to the policy limit) if the contractor is found to be responsible for damages.*

Why do contractors need this coverage?

As the traditional construction delivery model evolves and the lines of responsibility between contractors and design firms overlap, contractors are assuming design liability, either directly or indirectly, thereby increasing their exposure.

Furthermore, design/build as a project delivery method influences project owners' expectations for all types and sizes of construction - not just large-scale projects. Owners are now looking for a single point of contact so that they have to deal with only one entity if a project issue arises, and in most cases, that is the contractor.

*NOTE: The insuring agreement in a policy sets out the covered perils, assumed risks, and nature of coverage that the insurance company provides to its insured in exchange for the premiums paid. Thus, the terms and conditions of the policy will dictate whether coverage exists and the nature of any potential benefits.