It's a common misconception among construction professionals that their work does not have a professional liability exposure, particularly if they are a contractor who doesn't do design work.
With the cost of doing business rising for construction professionals, it can be a challenge for agents and brokers to convince construction clients to purchase professional liability coverage, especially if it isn't required by the project owner.
It's a common misconception among construction professionals that their work does not have a professional liability exposure, particularly if they are a contractor who doesn't do design work. They may incorrectly think that their project role doesn't open them up to negligence or errors & omissions claims, and they believe their general liability coverage for bodily injury and property damage is sufficient.
But the truth is, contractors have a professional liability exposure if they are leading pre-construction services or if they are general contractors, construction managers, design builders or major trade contractors engaged in the planning and design phases of a project.
While construction professional liability claims are low frequency, they are high severity and steadily growing. Social inflation is also having a major impact on claims costs across all lines of business, according to the Insurance Research Council. As the number of claims being litigated increases and sympathetic juries award higher damage amounts to plaintiffs, the professional liability segment is not immune to this trend.
Professional liability claims generally arise out of economic loss, but in our experience at Berkley Construction Professional, only one in four contractors obtains professional liability coverage. This is a big problem.
As social inflation continues to evolve and expand, so will construction professional liability exposures. And amid litigation environment changes, it is critical for agents and brokers to educate their construction clients about how claims can arise from a wide variety of activities involved for various jobs.
A place to start is by reviewing the many different scenarios that construction professionals should be aware of. These scenarios can include and are not limited to working with project owners on value engineering or cost reduction; assisting with project design decisions or providing design input; scheduling, sequencing or coordinating trade subcontractors; helping projects achieve “green" design or construction certification; and taking on project or management responsibilities on behalf of the project owner.
Agents and brokers should also educate clients on the professional liability-related claims they could incur from different scenarios, including cost overruns caused by scheduling delays; owner's consequential damages; loss of income; and business interruption.
A variety of professional liability coverage options are available to construction professionals, and capacity for this class from major carriers remains stable.
Agents and brokers need to understand and be able to explain the different policies that are available to construction professionals and what exclusions may be on those policies. For example, most general liability policies exclude claims related to pollution incidents, so the contractor may want a policy that combines professional liability and pollution liability coverage.
For agents and brokers to know what the best coverage option is for their client, they need to understand exactly what work their client is doing and what their liabilities are per the project contract. Construction professional liability is an ever-evolving market, with new coverage endorsements and niche policies being introduced to respond to the challenges contractors face. Don't let your clients get left behind.
Chris McQueen and Peter Brooks are senior vice presidents of Berkley Construction Professional, a Berkley Company.