Construction firm’s professional liability exposure
Many construction companies are not aware that they may have a Professional Liability exposure, even though there is a risk of lawsuits being brought against them for financial losses associated with their operations. “Professional Liability is liability insurance that covers contractors for construction errors, negligent acts and omissions in performing professional services,” explains Angela McKerlich, surety and construction risk advisor with CapriCMW insurance, a member of the Canadian Broker Network (CBN).
“It also includes coverage arising out of professional services from the contractor’s subs,” she adds.
Knowing which exposures you may have and proactively formulating a strategy to best manage that risk can help prevent a loss in the first place, McKerlich advises.
How to know if your construction firm has professional liability exposure?
If you answer yes to any of the following, your construction firm has a professional liability exposure, McKerlich advises:
• Project management and construction management (At Risk or Fee) • Enter into design build contracts • Have subcontractors that are consultants, engineers, environmental & geotechnical • LEED projects • General contractors with scopes of pre-construction services • Delegated design: Engineer doesn’t complete portions of the design scope • Design Assist: Contractor called on to value engineer, engineering changes not signed off
Example of a Professional Liability Loss for a Contractor
An Electrical Contractor is hired by the Project Owner to upgrade the lighting in the local arena. Part of the scope was to provide advice on the number of lumens in the lighting for the space. The lumens were not adequate once installed and all had to be replaced. The Contractor’s Professional Liability would cover the financial loss of the advice and having to redo the project.
What you should know about professional liability insurance policies?
These policies cover financial loss resulting out of the errors, negligent acts and omissions. In addition, the policy would respond to defence costs as well as to damages assessed.
“A traditional commercial general liability policy covers bodily injury and property damage from an occurrence – depending on the wording, may be excluded if as a result from professional advice,” McKerlich adds.
Risk Management tips to reduce your exposure
McKerlich offers the following risk management advise:
• Ensure a subcontract agreement is in place between the contractor and the consultant/engineer, that has an indemnification clause and describes specific limits of Errors & Omission Liability that they need to carry and for how long. • Create a specific sub-certificate tailored to the liability exposures laid out in the contract and collect the insurance certificates from your subs • Ensure the sub-consultant does not limit their exposure in their terms. This could place the risk entirely on the Contractor’s shoulders.
Talk to an expert insurance broker today about coverage solutions that best suit your Construction firm’s unique needs.