I am a Contractor, not a Doctor… why would I need to purchase Professional Liability Insurance?
The answer to that question is not an easy Yes or No. It has a lot to do with the contracts you sign as well as the services that you provide.
First let’s talk about what your general liability policy will provide for coverage. A typical general liability policy provides coverage for claims brought against you that result in bodily injury and property damage. Bodily injury is obvious, but with property damage not so much. A loss has to be to tangible property of others first and only then will a financial loss be considered.
Real Life Example #1:
An electrical contractor recently installed a switch gear package which after installation caused a fire that prevented the plant from opening in time. This resulted in a loss of revenue to the owner. No problem; because there was property damage to others there will be coverage for the lost income of the owner.
If instead the electrician sizes a circuit incorrectly and that mistake causes no tangible physical damage but the plant is unable to open for two weeks to diagnose the problem. There will be no coverage under the general liability policy for the loss of income.
Ok, so now the other more significant exposure for our contractor. Today’s general liability policies do not provide coverage for bodily injury and property damage (tangible or not) when the contractor has gone beyond the role of delivering services considered ‘traditional methods and means of construction’ to providing ‘professional services’ Methods and Mean-In the Engineers Domain?.
Here is an example
Real Life Example #2:
A HVAC contractor installs a cooling unit that is not sized properly for the location/use of occupancy. As a result, mold forms and damages the building’s interior and causes sickness to the workers; remediation, bodily injury, loss of income, etc….all excluded. The insurance company will likely take the position that the contractor went outside his/her normal scope of competency to provide ‘ordinary methods and means of construction’ and instead provided services of a ‘professional nature’. Sounds like this is a claim that will end of in court and the legal fees to get there will be paid by the contractor.
Over the last 25 years contracting in most trade groups has become a sophisticated and complicated business. The technical nature of their business may from time to time take them out of the traditional role of delivering a finished product exclusively using ordinary methods and means and instead has them performing services that would be considered ‘professional’ in nature. Even when a contractor employs an engineer to provide the professional services required of the contract, as found in design build projects, the mistakes of the engineer will cause the contractor to be named in a law suit. Unfortunately the contractor will have no defense cost covered if the basis of the claim is the failing to render what would be considered professional services. And if you think that you, the contractor, can be named as an additional insure under the engineers professional liability policy that is very unlikely.
Ok so how to you avoid this
Recommendations on how to make sure you are fully protected:
- Avoid the Owner that is in a rush to get the job done and does not hire an engineer when you know he should and tells you just do it as you see fit.
- Carefully review your contracts to make certain there are no inferences imposing professional liability exposures on the work you are asked to perform.
- Review your policies carefully and attempt to have all professional liability exclusions removed.
- When it becomes necessary to hire an engineer as part of your design build contract make sure you are dealing with a reputable firm with limits of liability at least equal to your general liability limits.
- Obtain quotes for professional liability insurance at each renewal with limits equal to your limits of liability insurance.
- Review your professional liability policies carefully. One of the most important items is the description in the policy of the services that you render.
- Make sure your agent has professional liability insurance.
Here are a couple of articles that take a deeper dive into this subject
Please feel free to contact me with any questions