Contractors Professional Liability (Errors & Omissions): A Vital Safeguard in the Construction Industry

By Patty Cashin

When your construction project hits an unexpected snag, are you covered? Imagine the stress and financial strain when what starts as a small oversight leads to costly rework and lengthy legal disputes.

Without targeted insurance, these issues aren't mere hiccups; they can swiftly become major setbacks, threatening the very success of your project.

Here’s why Contractors Professional Liability insurance isn't just a good idea, but a project lifesaver.

Understanding Contractors Professional Liability Insurance

Contractors Professional Liability (CPL), also known as Errors & Omissions insurance, is a specific type of construction insurance that provides comprehensive coverage to contractors and building professionals specifically for construction errors.

The Scope of Coverage

CPL coverage reaches beyond the contractor, encompassing errors from third parties such as architects and engineers. From faulty designs to improper installations, CPL covers a range of structural flaws that stem from negligence or the failure to disclose vital information. It’s a comprehensive shield against the risks inherent in the construction process.

Understanding the practical implications of CPL becomes clearer when we consider real-life scenarios where this insurance has proven vital:

Economic Loss Claims

• Design Delegation: A contractor outsourced a ventilation system's design to a mechanical engineer who lacked Errors and Omissions (E&O) insurance. The engineer miscalculated the building's cooling needs, leading to an inadequate ventilation system. This error resulted in significant underperformance, failing to meet the project's standards. Consequently, the building owner was compelled to replace the system, incurring a hefty cost of $180,000.
• Design Error: A contractor estimated a warehouse project at $2 million, only to later find the designed loading platform didn't meet the warehouse's needs. To correct this design error and achieve the required standards, major revisions were needed, escalating the project cost to $2.5 million. The contractor faced liability for this $500,000 cost overrun.

Third-Party Bodily Injury or Property Damage Claims

• Design Delegation Gone Wrong: A subcontractor incorrectly designed and installed an HVAC system, leading to mold growth in the chillers and air contamination that made building occupants ill. This issue escalated into multiple lawsuits against the contractor, filed both from the sickened individuals and the building owner, who faced business disruptions.
• Construction Management Oversight: A contractor failed to notice a masonry contractor's error: hollow concrete blocks were laid without the required re-bar reinforcement, contrary to the plans. This major mistake was found only after much of the construction was done. The severe outcome? The structure had to be demolished and rebuilt, leading to costs around $1 million and significant project delays.

Why Contractors Need Professional Liability Insurance

Constructing a building is a symphony of skills, involving designers, architects, contractors and engineers. However, this complexity often leads to mistakes, resulting in costly delays, budget overruns and even legal battles.

Unlike General Liability insurance, which covers accidents and resultant bodily injuries or property damage, CPL insurance specifically addresses the unique challenges contractors encounter.

Types of Coverage

• Third-Party Coverage: This safeguards individuals outside the project who are affected due to professional errors or negligence from a contractor or subcontractor.
• First-Party Indemnity Coverage: This covers the insured contractor against claims filed against their subcontractors for errors for which they are legally responsible.
• Pollution Coverage: It safeguards contractors against the consequences of undetected pollutants emitted during a project.

What CPL Does Not Cover

It’s crucial to understand the limits of CPL insurance. Policies are generally written on a claims-made basis, meaning coverage is only effective for incidents occurring and claimed within the policy period.

It does not cover legal disputes arising from bodily injuries or property damage due to standard construction operations, nor does it cover personal injuries like libel or slander, or contractual liability issues.

Build with Confidence: MMAs Contractors Professional Liability Insurance

When a single miscalculation can spiral into a financial crisis, Contractors Professional Liability insurance is your indispensable line of defense. This insurance transforms potentially devastating errors into surmountable obstacles, ensuring your project’s success isn't left to fate.

To fortify your project against the unforeseen, connect with an MMA representative today or delve into our extensive array of construction insurance solutions.