Contractors increasingly provide design input, technical recommendations, delegated design and construction-management services. These responsibilities can create professional exposures that may not be fully addressed by Commercial General Liability insurance.
How Professional Liability Differs from CGL Insurance
Subject to its terms, conditions and exclusions, a Commercial General Liability policy generally responds to covered third-party claims involving bodily injury or property damage arising from the insured’s operations, premises, products or completed work.
Professional liability insurance serves a different purpose. It may help protect contractors against covered claims alleging that an error, omission or negligent professional service caused a client or other claimant to suffer financial loss. Depending on the policy, coverage may also extend to certain bodily injury or property damage claims arising from covered professional services.
Many CGL policies contain professional-services exclusions, and purely economic losses may fall outside the intended scope of CGL coverage. However, coverage depends on the allegations and the wording of each policy. Contractors should review both their CGL policy and any commercial package policy to identify potential gaps.
Professional negligence may be alleged when services fail to meet the applicable standard of care. That standard may depend on the contract, governing law, professional requirements, nature of the services and circumstances of the project.
When Can a Contractor Have a Professional Exposure?
A contractor does not need to be an architect or engineer to face a professional liability claim. Depending on the circumstances and policy wording, professional services may include work involving specialized knowledge, judgment or skill with a significant intellectual or advisory component, such as:
- Providing design or technical advice
- Preparing or reviewing plans and specifications
- Recommending construction methods or materials
- Performing certain construction-management services
- Accepting responsibility for delegated design
- Coordinating or overseeing design professionals
- Providing estimates, schedules or feasibility advice
Claims may arise from design errors, inaccurate advice, incorrect specifications or coordination failures. Delay, cost-overrun and lost-revenue claims may be excluded or restricted, so contractors should not assume that every financial-loss claim is covered.
Subcontracted Design Services
Hiring an architect, engineer, surveyor or other consultant does not necessarily eliminate the contractor’s exposure. A contractor may still be named in a claim arising from professional services performed by a subcontracted design professional.
Contractors should confirm whether their policy covers legal liability arising from services performed by subcontracted consultants. They should also require appropriate insurance by contract and obtain certificates of insurance as evidence of coverage, recognizing that a certificate does not amend the policy or replace a review of relevant policy terms and endorsements.
Bonds should be considered separately. A performance or payment bond addresses specified contractual obligations and does not replace professional liability insurance.
Policy Structure and Key Terms
Professional liability insurance may be arranged as a standalone annual policy, included in certain combined insurance products or purchased for a specific project. Contractors should not assume that their CGL, commercial umbrella or excess liability policy automatically provides professional liability coverage.
Important features to review include:
- Each-claim and aggregate limits
- The deductible or self-insured retention
- Whether defence costs reduce the available policy limit
- The definition of professional services
- The retroactive date and prior-knowledge provisions
- Contractual-liability exclusions and reporting requirements
- Coverage for subcontracted professional services
Claims-Made Coverage and Continuous Insurance
Most professional liability policies are written on a claims-made or claims-made-and-reported basis. Depending on the wording, a claim may need to be both made against the insured and reported to the insurer during the policy period or an applicable extended reporting period.
Coverage may also depend on when the services were performed, the retroactive date, prior knowledge of a circumstance and continuity of insurance. If a contractor closes, sells the business or stops providing professional services, an extended reporting period or run-off arrangement may be considered. This generally extends the time to report claims arising from covered work performed before the policy ended; it does not ordinarily cover new services performed afterward.
Protecting Your Business
Professional negligence may be alleged when services fail to meet the applicable standard of care. That standard may depend on the contract, governing law, professional requirements, nature of the services and circumstances of the project.
Because coverage varies by insurer and policy wording, contractors should work with an experienced commercial insurance broker to identify their professional exposures and arrange suitable protection.
Reliance Insurance supports clients across Canada through a national network of offices and globally through our broker network partners.