Many contractors are unaware of their own professional liability exposure. In fact, several aspects of the work that contractors do can make them vulnerable to being sued for financial losses by clients alleging errors, omissions or negligence.
DOES YOUR BUSINESS DO ANY OF THE FOLLOWING?
- Project management and construction management (at risk or fee)
- Design-build contracts
- Hire subcontractors for consulting, engineering, environmental and geotechnical services
- LEED projects
- Act as general contractors with scopes that include pre-construction services
- Delegated design
- Design-assist
IF “YES,” YOU SHOULD BE TAKING MEASURES TO LIMIT YOUR EXPOSURE.
Professional Liability Insurance
“Professional Liability is liability insurance that covers contractors for construction errors, negligent acts and omissions in performing professional services,” explains Angela McKerlich, a Surety and Construction Risk Advisor at Acera Insurance. “It also includes coverage for claims arising out of professional services from the contractor’s subs,” she adds.
Professional liability policies will pay defence costs as well as any resulting damages.
Example of a Professional Liability Claim
A project owner engages an electrical contractor to upgrade the lighting in an arena. The contractor advises on the number of lumens in the lighting required for the space as part of the project scope. Upon installation, it is clear that the lumens were inadequate and all lighting has to be replaced. In this case, the contractor’s professional liability policy would cover the financial losses suffered as a result of the advice provided and costs of redoing the project.
Additional Risk Management Steps
Angela advises that understanding the exposures you have and being proactive in managing those risks can help prevent losses from happening altogether. In addition to securing your own insurance, Angela recommends that contractors do the following:
- Ensure subcontract agreements between your business and the consultants/engineers are signed that include indemnification clauses and specify limits of errors & omissions liability they are required to carry and for how long.
- Create a specific sub-certificate tailored to the liability exposures laid out in the contract and collect the insurance certificates from your subs.
- Verify that sub-consultants are not limiting their exposure in their terms, thereby placing the risk entirely on your company.
Angela McKerlich is a Surety and Construction Risk Advisor with 30 years of insurance experience and specialized expertise in complex construction operations. Angela lends her expertise to the British Columbia Construction Association (BCCA), Southern Interior Construction Association (SICA), Northern Construction Association (NRCA), Vancouver Regional Construction Association (VRCA), Construction Foundation of BC (CFBC), and the Surety Association of Canada (SAC) in various roles.
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