According to the International Risk Management Institute, contractors, project owners, and project professionals have increased risk of professional liability claims. Yet, less than half of all contractors in need of the coverage are buying it. Why is that? It might be that contractors don’t fully understand what the coverage is designed to do. We hope this update will help our clients in Louisiana analyze their exposure and determine a course of action.
Contractors have a professional liability exposure when they perform or subcontract design, modify plans, change a manufacturer’s specifications, or provide professional construction management services to a project owner. This exposure is of increased risk in design build projects. Most if not all contractors’ general liability insurance policies include a professional liability exclusion that removes coverage for claims arising from their professional services work.
CPLI is designed to provide the contractor with coverage for defense costs, third-party losses resulting from professional negligence, and pollution if coverage has been added. Defense cost coverage alone is important, even if allegations against the contractor are false, which can present the contractor with a financial burden that might significantly impact the bottom line. Sometimes the biggest exposure is a simple conversation or discussion between the contractor and owner that causes a professional liability situation.
Many of the policies have the option of adding contractor’s pollution. This can be another important coverage that every contractor should consider. Recently a contractor had a claim in which a subcontractor was refueling a truck and spilled 100 gallons of fuel into a small stream. As it turned out the subcontractor had no pollution coverage, and the general contractor was forced into litigation. The general contractor spent $20,000 just to get out of the claim.
These policies do have exclusions; some of the common ones are; contractual, site safety, insured vs. insured, cost to repair faulty workmanship, and others. Coverage is readily available and we recommend all contractors consider contractors professional liability as part of their business planning.
Take time to review your exposures. If you are involved in any of the following, you are at risk for an uninsured loss: providing constructability reviews, selection of architects and engineers and other subcontractors, supervision of work, pre-construction services, construction manager activities, subcontracting design work or partnering in a joint effort with architects and/or engineers, employing the services of design professionals, and accepting responsibility for the project’s design via contract.
Experience is important in business. It helps us to make the right decisions for you the first time. Making the right choices is important when it comes to commercial insurance. As a business owner, you need the same kind of insurance coverage for the car you use in your business as you do for a car used for personal travel — liability, collision and comprehensive, medical payments (known as personal injury protection in some states) and coverage for uninsured motorists.