General contractors know they need to be insured before providing any service to the public.
For example, builder’s risk insurance is a must-have when building or renovating a residential property, as are tools and equipment insurance and commercial general liability (CGL) insurance.
But the lines of responsibility between design firms and contractors are blurring, meaning contractors are assuming risks that their insurance policies may not adequately address. Many construction projects utilize design-build as a project delivery method. That is forcing contractors to take on design liability, either directly or indirectly, in turn, increasing their professional liability exposure. That can leave general contractors exposed to wildly expensive errors or lawsuits that could be financially devastating if they lack professional liability coverage.
Professional liability insurance, or errors and omissions (E&O) insurance, provides coverage that protects both contractors and other professionals you hire. It protects you and your employees if a mistake is made on the job, and it accounts for other losses during a building project. Errors, omissions, or negligence in the professional services you provide can result in project delays, budget overruns, revisions, and third-party bodily injury or property damage.
Why Contractor’s Professional Liability Insurance Matters
Every contractor is expected to provide quality work, expertise, and skill regardless of the type of work they do, be it a plumber, electrician, builder, or general contractor. Your customers rely on your skills, advice, and standard of care. If you fail to deliver that standard of care, make a mistake, or give poor advice, you could be held liable for negligence.
Unlike a CGL policy, which provides financial support for accidents or unexpected events resulting in third-party property damage or bodily injury, a professional liability insurance policy is not activated by an unfortunate occurrence. But if an allegation or claim of negligence or poor work is made against you by a customer who suffers a financial loss, that’s when the benefit of professional liability coverage becomes obvious.
Therefore, adding professional liability to your overall policy, whether you’re a design-build contractor, general contractor, or artisan contractor, is crucial. You provide professional services for a fee. If you’re sued, the legal expenses to defend yourself in court can escalate quickly, even if that lawsuit is dismissed and you’re found not liable.
5 Tips for Avoiding Professional Liability Disputes
Here are five ways contractors can be proactive and prevent a professional liability claim:
1. Have a written contract
Don’t rely on verbal agreements; always get it in writing. Include timelines for completing your work, outline the scope of your services, and include a process for receiving and resolving complaints or concerns.
2. Communicate frequently
Clear and frequent communication with your customers via email provides you with a record of what was discussed and when, helps you and your team keep to deadlines, and prevents minor misunderstandings from becoming big problems.
3. Have planned milestones
Adding near-term goals as part of the plan can help keep you on target to meet the project’s completion date on time. Share them with your customers. That way, if corrections are required, you’ll know immediately.
4. Adhere to industry best practices
In addition to following the laws and regulations you are required to in your province, stick with adhering to industry best practices to ensure you meet the expected standard of care.
5. Review your insurance policy
Without a doubt, thoroughly review your professional liability insurance policy, its limits, and exclusions before embarking on any project. Ensure you’re adequately covered for all risks you face in any project. If you’re uncertain as to what you need, speak to a licensed broker about what your options are.
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