Contractors Face Professional Liability Risks Even If They Don’t “Design” AnythingIf you offer design services, professional liability coverage may seem like a no-brainer. However, many contractors mistakenly assume they don’t need this protection because they don’t handle design. Without proper coverage, you may expose yourself to uninsured claims, and all the financial costs and reputational damage that can accompany litigation.
What Is Professional Liability Insurance?
Professional liability insurance is also called errors and omissions insurance, and as these two names suggest, it provides coverage for claims involving professional errors and omissions. More specifically, it provides coverage for allegations of professional negligence resulting in financial loss for the client.
If a client sues you claiming that a mistake, oversight or failure to meet professional standards on your part resulted in financial harm, your professional liability insurance policy can cover the legal costs, including your defense and settlements or awards, up to your policy limits. Coverage can help contractors preserve cash flow, maintain business continuity, satisfy client requirements and demonstrate a proactive approach to risk management.
General Liability Insurance Leaves Critical Gaps
When contractors don’t secure professional liability insurance, it often comes down to the mistaken belief that they don’t need it because they already have general liability insurance.
This common misconception can lead to a major coverage gap. General liability insurance provides important coverage, but it does not protect against claims involving professional liability resulting in financial loss.
General liability insurance primarily provides coverage for third-party claims involving property damage or bodily injury. If you’re doing reconstruction work and a client trips over the materials you’ve left out or is hit by a nail that ricochets from your nail gun, you can report the claim to your general liability insurer. Likewise, if a hot tool of yours burns the counter, or if you drop something heavy and dent the flooring, you can report the claim to your general liability insurer.
General liability insurance also provides coverage for personal and advertising injuries. As a contractor, you might use this coverage if you’re sued for copyright infringement in an ad, or if a competitor or former client accuses you of defamation.
But if a client accuses you of poor workmanship, missed deadlines, or other acts of professional negligence resulting in financial loss, your general liability policy won’t cover you. For these types of claims, you need contractors professional liability insurance.
Contractors Professional Liability Claim Scenarios
You sign a contract to build a gazebo by May 1. Unfortunately, the project takes longer than anticipated due to several unforeseen events, including a subcontractor who quits on you and a measuring mistake that means you have to buy new materials and redo part of the gazebo. The May 1 deadline comes and goes. The client wanted the gazebo for a wedding, and because of the missed deadline, the client had to book another venue at the last minute and at a tremendous cost. The client sues you for breach of contract.
Your general liability insurance policy would not cover this type of claim. However, your professional liability insurance policy could.
Other claims could involve allegations of poor workmanship that don’t result in bodily injury or property damage but do necessitate additional work and expenses, or of incorrect advice that leads to extra expenses for a client.
Even Careful Contractors Face Litigation Risks
You may think you don’t need contractors professional liability insurance because you don’t commit professional negligence. You work carefully to fulfill your contracts and maintain high professional standards. That’s great, and your diligence will protect you from many problems – but you can never completely eliminate the risk of lawsuits.
For one thing, anyone can have a bad day. One mistake, one oversight or one problem you can’t fix could result in a lawsuit.
Second, litigation is possible even when you do everything right. In order to be sued, the client needs to accuse you of professional negligence. Even if you’ve done nothing wrong, you’ll have to defend yourself, and that takes time and money. Honest misunderstandings are also possible. For example, you might give your client advice, but the client misunderstands and misapplies that advice, resulting in loss. Now it becomes a dispute over who is at fault. Professional liability insurance can support your defense.
Protect Your Clients and Your Career
Contractors professional liability insurance can provide you with peace of mind that you’ll have protection if you’re sued. It’s also a way to protect your clients and the long-term relationships you’ve built with them. As projects become more complex and litigation risks increase, contractors need insurance programs designed to address today’s exposures.
Heffernan Insurance Brokers helps contractors identify coverage gaps and build insurance programs tailored to their operational risks. To learn more about protecting your business with the right professional liability coverage, contact our team.
