Risk & Business Magazine Lloyd Sadd Insurance Brokers Fall 2016 | Page 30

INSURANCE FOR GENERAL CONTRACTORS

BY: GARTH LANE
LLOYD SADD INSURANCE

Professional Liability Insurance For
General Contractors
Why Is It Important?

I

n the past, there were two groups
in the construction business: the
builders and the designers. One
group would do the actual physical
labor and material work on the job,
the builders. Where the other group would
do the design work, the architects and
engineers. At that time, the latter group
fell into the category of “professionals.”
The distinction between the two groups
was not only obvious but also clear-cut.
Contractual arrangements could be made
which separated the two and insurance
would be purchased accordingly. Today,
however, general contractors have become
construction managers, or “designbuilders,” performing tasks of both
designers and builders in their day-to-day
operations.
The changing job requirements for
design-builders have led to new challenges
in terms of risk allocation. Contractors
should be continually reassessing and
reviewing the professional liability risks
that they may face for each project they
undertake. Professionals are expected to
be able to perform the services that they
offer with a certain degree of knowledge
and with the care and skill that their

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FALL 2016

peers would be able to provide. Failure
to perform to that standard would be
considered negligence. Damages incurred
by the professional’s client, or other
damages resulting from that negligence,
are professional liabilities.
Professional liability insurance is used
as a protection for the client and the
professional or firm in question. It covers
potential risks arising from a situation,
activity, or given profession. Errors and
Omissions (E&O) insurance coverage is
meant to provide coverage for situations
where the damages are alleged to have
resulted from negligent performance of
professional services.
The coverage itself is broad and claims
can be triggered by legitimate negligent
acts. These are designed to handle
“economic loss” without any injuries or
physical damage. They also protect against
frivolous allegations of negligence and
assist with the protection of individual and
company assets by providing defense costs.
Many contractors mistakenly believe
that their commercial general liability
insurance will cover damages arising from
professional services. Unfortunately, that is

not the case. There are specific exclusions
in commercial general liability policies
such as bodily injury or property damage
resulting from activities which are viewed
as professional in nature.
SO WHO WOULD BE THE BEST FIT FOR
PROFESSIONAL LIABILITY INSURANCE?
Contractors and subcontractors engaged
in project management, design-build,
delegated design, design assist, value
engineering, construction management, or
other jobs in which professional services
are rendered. The list can go on, but
knowing the type of work you will be doing
and the potential exposures which can
arise from it is the key. For each project,
consider what you or your company will be
doing and whether it could be interpreted
as a professional service or not. +

Garth is responsible for the creation,
development, design, and delivery of
unique insurance and risk management
solutions that protect and enhance the
growth of contractors in the construction
industry. With over 30 years of experience,
Garth is a leader in the industry.