Not all fields require registration or licensing to be recognized as a professional. Anyone who is an expert in a field and is paid for their services can be expected to provide a level of care and skill and can be held liable for the work or advice they provide. This is referred to as the standard of care and a failure to deliver this constitutes negligence, giving these businesses a need for E&O insurance.
A general liability (GL) policy is intended to provide coverage for third party bodily injury and property damage and is triggered by accidents or unforeseeable events known as “occurrences”. An E&O policy is different; it is not triggered by an “occurrence” but will respond when a claim is made for financial loss caused by the negligent actions of the contractor.
We take a look at why design build, general and artisan contractors should consider taking out an E&O policy in addition to their GL policy in order to have comprehensive cover for all their exposures:
Design build and general contractors
Design build contractors with in-house design capabilities should always carry E&O cover for any design-related claims from work performed by architects, engineers, or similar. Even if they subcontracted these services to third parties who carry their own insurance, they could still have vicarious liability cover, especially if one of those subcontractors fails to maintain their insurance.
General contractors, who do not provide any design service, usually still provide some form of professional service, and should purchase E&O cover to help protect against the gaps in a standard GL policy. If the insured is deemed negligent in some form of inspection, supervision, quality control services, construction or project management, or failure to warn on the services of others, this would be excluded from an GL policy and the contractor would need to carry E&O insurance to be covered.
The legal defense cover, which is provided under an E&O policy, is also vital to any contractor as it can quickly become costly to defend yourself against a claim even if you ultimately were not liable and the lawsuit is dismissed. Often when something goes wrong on a construction project, the general contractor is one of the first parties named in the suit.
Additionally, it is becoming increasingly common that contractors are being required by contract to carry a minimum level of E&O cover.
Artisan contractors
Artisan contractors (plumbers, electricians, HVAC contractors, painters, carpenters etc) provide a specialist service on part of a build. They might think they have little liability from an E&O standpoint as they do not have overall responsibility for the project, but if they only hold a GL policy it can leave them exposed to uncovered claims, such as faulty workmanship.
In most cases faulty workmanship and defective construction is classed as an “occurrence” under a GL policy. However there have been some recent cases in which jurisdictions have flipped their approach and now find faulty workmanship and defective construction are not an “occurrence”, and therefore, do not trigger GL policies. Even if faulty workmanship is covered in a jurisdiction the “your work,” “your product,” and “impaired property” exclusions can leave artisan contractors with coverage gaps, leaving the contractor picking up costly bills for their portion of the job.
A workmanship extension
Contractor’s E&O insurance can extend to cover faulty workmanship. This extension protects the value of the work performed if it is damaged due to unintentional faulty workmanship.
The extension provides cover for the contractor’s work, product or impaired property that occurs after the job is complete and results from your negligence, errors, or omissions. If the company is held liable, the policy would cover the cost to repair or redo faulty work, as well as any legal defense against those claims. Whereas a GL policy will only protect from damages that their work causes to third party property, not the contractor’s own work.
If you have any questions about E&O insurance for contractors, please get in touch with CFC’s US professions team by emailing professions@cfc.com
