What is Contractors Professional Liability Insurance?
Normally reserved for design professionals, such as architects, engineers or web designers, contractors professional liability insurance (CPLI) protects contractors from claims arising from negligent errors or omissions that occur while they are performing a professional service. This coverage has become increasingly necessary for contractors who have taken on the responsibility of both designing and building.
What Exactly Does CPLI Cover?
It is a common belief that an error or omission made during the design-build process is covered under a typical commercial general liability (CGL) policy. Although professional liability is not excluded from the basic CGL policy, insurers often add an endorsement to exclude it. A CGL policy covers contractors against bodily injury or tangible property damage due to their professional service, but not economic damages (financial losses). And because the majority of all claims against design professionals are for economic damages, CGL coverage would not apply.
CPLI fills that coverage gap by protecting contractors from claims made due to an error or omission that occurred while they were performing a professional service. Examples of situations in which a CPLI claim may arise include:
- Improper design of a concrete floor that cracks under the weight of a company’s equipment.
- Installation of a heating and cooling system found to be incapable of properly ventilating a building.
- A design defect that prohibits a building from being certified.
- A flaw in a building’s structure that causes a business interruption in order to have the flaw repaired.
Even if a contractor subcontracts the design work and indemnifies the contractor from any liability, CPLI is still a good coverage to have. There are several reasons for this:
- The indemnification, also known as a hold harmless clause (or provision), may not be enforceable.
- If the design company went out of business or no longer carries professional liability coverage when the claim is made, the contractor may be out of luck and held responsible for the damages.
- If the design professional’s policy limits are low or exhausted, the contractor may be found liable.
CPLI is usually written on a claims-made basis, meaning the policy must be active when a professional liability claim is made in order for coverage to apply. Because of this, CPLI should be carried for a long-term period to ensure there is no possibility of an excluded claim in the future.
The policy may be tailored to include specific types of work done by the design professional. Alternatively, the policy can be made broader by including a list of covered activities.
As an “all-risk” coverage, there are certain things that are excluded under a typical CPLI policy. Typical exclusions include:
- Failure to complete a project on time.
- Deliberate noncompliance with laws and regulations.
- Performance guarantees (warranties).
- Ownership, use or maintenance of mobile vehicles, such as automobiles, watercraft or aircraft.
- Products made by the insured.
- Faulty workmanship (this is considered a construction risk rather than a design risk).
- Government actions or war.
- Contractual liability.