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Construction
General Liability vs. Professional Liability- Why You Can’t Believe the “Design” Myth
Construction work is risky. Accidents and mistakes occur even in the best circumstances. Many contractors falsely believe that if they don’t do design/build work, they don’t need professional liability insurance. Don’t fall for this myth. To safeguard against common exposures, all types of contractors must carry both Commercial General Liability and Professional Liability insurance.
| Commercial General Liability (CGL) | Professional Liability |
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CGL insurance covers losses caused by ordinary construction methods if they result in bodily injury or property damage arising from an occurrence. For example:
· Bodily Injury: If a third party is injured, general liability insurance can provide coverage. For example, a claim could involve a passerby being injured on a worksite.
· Property Damage: General liability insurance can provide coverage for property damage. For example, a claim could involve a forklift damaging a gas line where work is being performed.
· Contractual Liability: If you assume liability through a contractual arrangement and a claim results, your CGL policy will also provide coverage.
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Professional liability insurance provides coverage for economic losses and other damages resulting from the rendering or failure to render professional services.
· Construction Management Errors: If errors in judgement or supervisory negligence results in costly delays or other costs, you could be sued. Example: A contractor failed to notice a structural defect that resulted in the need to rebuild.
· Design Errors: Whether you’ve hired an architect/engineer, you’ve subcontracted parts of the job, or you’re making design decisions on the fly, if your work fails to perform as expected, you can be sued. Example: A contractor subcontracted HVAC work and the subcontractor’s faulty HVAC design resulted in a costly mold issue in the building.
· Misrepresentation: If you fail to disclose facts or conditions that affect the project or the finished product, you can be sued.
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Why Both Coverages Are Essential
Countless contractors have been sued for professional liability. Even if you aren’t legally or contractually required to carry professional liability insurance, you should have it. Many aspects of your work involve management and design decisions. The lines are constantly blurred. What looks good on paper, does not always work in the real world. You and your subcontractors are required to make judgements and adjustments to plans every day. If you get sued for making a costly mistake, you’ll need the right coverage – or the defense costs and resulting damages could bankrupt your business.
Brent Heilesen
Brent specializes in Property and Casualty, Surety, Professional Liability and has over 20 years of industry experience in banking practices and construction.
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