Contractors are always aware of their need for General Liability Insurance and Worker’s Compensation. In almost every case, the contractor is required to provide proof of insurance in order to obtain a state license in the first place. But what about claims that aren’t about property damage, bodily injury, or employment-related illnesses or injuries? More often than not, contractors are required to provide some form of project related agreement outlining project costs and completion dates. The agreement also will include a detailed project scope that must be adhered to unless changes are approved by the project manager. In most states, this agreement is considered a contract and if breached by either party could result in legal action. If the legal action involves a breach of contract, the contractor’s General Liability is not going to respond for the contractor. In these cases, Professional Liability Insurance will be needed to pay for defense costs, financial settlements, or court-awarded judgments.
In the construction industry, professional negligence is typically defined as the failure to perform duties according to the rules or standard of care or practice that would be expected from another professional performing a similar task in the same region or location. Based on this definition, almost every contractor has a professional liability exposure as a result of any form of written agreement that lists the goals of the project.
Typical Claims Professional Liability Claims against Contractors
- Design-Build– For many projects, the contractor may be responsible for design work and then building the project based on their design. If for any reason, the design-build part of the project is insufficient, the general liability policy will not respond, and only a professional liability policy would be triggered. In fact, most general liability policies will specifically exclude coverage for “professional services” which is the category the design-build work would fall in.
- Regulatory Errors– In almost every jurisdiction, the contractor will be responsible for applying for the necessary permits required by the local jurisdiction. Failure to properly apply for the permit could result in construction delays and in some cases, having to tear down and then rebuild the project because of rejection by an inspector.
- Hiring Subcontractors– Hiring subcontractors increases liability as does having the responsibility for processing and approving payments to subcontractors. Interfering with the work of a subcontractor can also create liability exposure, especially if the subcontractor is considered a specialty contractor to address unanticipated issues affecting the project schedule.
- Construction Management– Advertising or accepting responsibilities as a specialist in the management of the construction process moves a firm into a consulting role and as such, increases it’s professional liability exposure.
- Project Delays– Every contractor faces issues for project delays. Although considered a typical event in the construction industry, if a project delay results in significant financial loss to the client an action may be brought demanded reimbursement. In this case, the General Liability policy will fail to respond, and only a Professional Liability policy will be triggered.
Any general contractor or subcontract in today’s litigious environment should seriously consider protecting themselves and their business with a Professional Liability policy that provides coverage against claims resulting from failure to perform in a professional manner. Every action brought against a company, whether frivolous or not, requires a response from a skilled attorney. By having a professional liability policy in place, you can depend on the insurer’s duty to defend to respond on your behalf and protect the resources of your company.
Fairbanks Insurance Brokers is available to offer all contractors an insurance package sufficient to mitigate the everyday risk of doing business.
Here’s what we recommend:
General Liability: Contractors General Liability will be the foundation of protection for your business. The coverage will respond if you or your employees are found liable for bodily injury, property damage, or have a products/completed operations complaint. The coverage also covers defense costs for your business to respond to any lawsuits brought by a third party.
Workers’ Comp: Many states will require contractors to provide workers’ compensation coverage for their workers before they can begin a project. Accidents will happen at the job site that can result in an employee becoming injured and missing work. Your workers’ compensation coverage will provide financial assistance for medical expenses and lost wages.
Surety Bonds: It’s very likely that your state will require you to be licensed before you can begin operations. Most states and customers will require contractors to offer a license or surety bond before you are allowed to bid on a job or begin working.
Commercial Auto: Typically, most contractors will have light and heavy vehicles that require commercial auto insurance to make certain their vehicles can be repaired or replaced in the event of an accident, vandalism, or theft.
Tool Coverage: Also known as Inland Marine Insurance, this policy will provide for reimbursement for expenses to repair or replace tools and equipment. Your tools represent an important part of your livelihood, so we always encourage carpentry contractors to consider this valuable coverage.
For more information and a free commercial insurance quote, contact an insurance professional at Fairbanks Insurance Brokers at (949) 595-0284.