Depending on what type of construction project you are undertaking, whether it be new construction, home remodel or renovation you may have to consider the need for Professional Liability Insurance coverage.
In the instance of new construction if your project has been designed using the services of an architect, the architect should carry this type of errors and omissions policy but homeowner’s don’t always use or budget for these services.
If you choose to go directly to a contractor or subcontractor with in-house design services, this kind of coverage is not typical and may place you at risk. Learn what this insurance is, if you need it and how it can protect you.
Why Consider Professional Liability Insurance?
Generally, professional liability policies provide coverage for actual or alleged errors, omissions, negligence, breach of duty, misleading statements, and similar claims resulting from the performance or the non-performance by the contractor or subcontractor providing you with professional design services.
Most of these policies will cover both the defense costs in making a claim against the policy (e.g. attorney fees, court costs) and settlements or judgments.
What this means is if your contractor is also doing the “design” work; he can get Design/Build Liability Insurance. This insurance, also known as Errors and Omissions (E&O) insurance covers “design flaws” (design defects) and the cost of remediating a situation where there may be a design flaw or the design itself is faulty.
This, for architects, engineers, contractors or subcontractors would be similar to what malpractice insurance is for doctors, dentists and chiropractors, etc. When you need a Professional Liability Policy is when this not covered by anyone you are currently working with and want to ensure you are protected against the chance of a design defect. This is also different from a manufacturing defect.
What may be considered a “Faulty Design”?
A faulty design claim may be made by you against the contractor for any work he installed and designed that does not perform as promised in your original contract agreement. This would apply whether your project is new construction, renovation or remodel work.
This would only apply when the faulty design does not result in property damage or causes bodily injury as these conditions or situations would be covered by the contractor’s Commercial General Liability Policy.
For example, let’s say the ductwork in the HVAC (heating, ventilating and air conditioning) system you had added is too small for the area it needs to cover, or the ductwork has not been properly connected.
The installation and overall system “design” will fail to heat or cool properly in which case you would need to have it redone.
Even though the area where the HVAC ductwork is installed is always either too hot or cold, there has been no property damage or bodily injury to any person. In making an insurance claim against this problem, your contractor’s CGL (Commercial General Liability) insurance will not cover the costs for rebuilding which will then fall to you.
There is no insurance that will cover “poor workmanship” issues alone, but Professional Liability Insurance or Errors and Omissions Insurance will cover poor design.
Your Time Limit for Making a Claim
Most of these types of policies are written on a “claims made” or “claims made and reported” basis.
This means that any claims you make for faulty design and construction against your architect’s, contractor’s or subcontractor’s policy must be made within the policy period.
Getting proof of your architect’s or contractor’s coverage, before you sign a contract, will provide you with the policy period window before your work begins. If you find they carry no coverage, then this is a situation when you need Professional Liability Insurance yourself or you should consider other arrangements for having this work performed.
Best Limits of Liability for Coverage
The limit of liability on your contractor’s or subcontractor’s Professional Liability should be equal to the estimated cost of your contractor or subcontractor having to entirely redo the work at today’s costs.
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