E&O, CGL, HVAC, CPL, EPL, NFL… okay, so there are a lot of contractors insurance acronyms (and yes the NFL and EPL are not insurance policies). There are probably (admittedly) too many acronyms which can result in another obstacle to your understanding of what policies you need. To break down those barriers and make it a little easier for you to identify which policies you need, we will begin to define the differences in coverage between a commercial general liability policy and a contractors professional liability policy.
Contractors Professional Liability vs. Commercial General Liability Insurance
A commercial general liability (CGL) policy will cover you in the event of bodily injury and will also protect you from property damage liability claims. But, what happens when you aren’t injured and your property isn’t damaged but somebody still files a claim against you. The following situations are the most common claims we see that lie outside the protection of a CGL policy.
- A contractor hires a mechanical engineer to design the HVAC system for a new building. Sounds great! But, the system was designed improperly and now the top three floors of the building feel like a sauna. Unfortunately, the engineer had no contractors professional liability coverage, and now the project owner has to look to the contractor for the cost of replacing the system.
- A contractor was hired to design and build a manufacturing facility for a steel fabricator. After construction was completed, it was discovered that the original design was inadequate and couldn’t support the weight of the machinery to be used by the customer (resulting in a fairly lethal workplace). Therefore the customer looks to the contractor for the additional $500,000 needed to correct the problem.
Commercial General Liability Insurance Exceptions – When Injury and Property Damage Isn’t Enough
Sometimes, the claim against the contractor does involve bodily injury or property damage, but the claim isn’t covered because a professional liability exclusion has been added to the contractor’s CGL policy.
- A HVAC contractor designs and installs a ventilation system for a new building. Unfortunately, the design was faulty and resulted in mold growth in the system, causing occupants of the building to become sick.
- A homebuilder designs and builds a new subdivision. Residents of neighboring properties file claims against the builder after they suffer water damage. They claim that the water drainage system for the subdivision was designed improperly causing runoff onto their properties.
The solution to the contractor’s coverage gap in either instance is contractors professional liability coverage, sometimes referred to as contractor’s errors and omissions coverage. So, if you end up facing claims that arise from errors and omissions involving your professional services then you may want to consider acquiring contractors professional liability insurance.