Do you need Professional LIability (E&O)?

Most contractors assume only the engineer or architect need Professional Liability, but remember, once you start performing any design work or start taking on the role as a consultant, you may have an exposure. This exposure can even include simple decisions to replace a specified material with a completely rational substitution. If your company advertises their services as a design build contractor, then you DEFINITELY have an exposure even if you subcontract out the actual design work.

Construction Managers are a relatively new exposure from the perspective of the insurance and legal industry. This is not because this is a new concept, it is simply because there has been a massive growth in this area over the past 10 years. This means litigation and case law have been lagging behind the construction industry. If you consider yourself a construction manger, you probably have a very large exposure that may not be covered under your General Liability policy.

What is covered?

Professional liability insurance policies are generally set up based on a claims-made basis, meaning that the policy only covers claims made during the policy period. For example: you currently probably purchase an entire year of auto insurance. If you have an accident during that year, that policy would typically respond. With a claims made professional policy, you actually purchase a policy that has a retroactive date “retro date” that could be anywhere from today up to 5, 10, or more years in the past. This means a policy you have in force today may respond to a claim related to a project 5 years ago or more. The longer the “tail” of the policy, the higher the premium.

More specifically, a typical policy will provide indemnity to the insured (you) against loss arising from any claim or claims made during the policy period by reason of any covered neglect, error or omission committed in the conduct of the insured’s professional business during the policy period. Claims which may relate to incidents occurring before the coverage was active may not be covered, although some policies may have a retroactive date, such that claims made during the policy period but which relate to an incident after the retroactive date (where the retroactive date is earlier than the inception date of the policy) are covered.

Coverage does not include criminal prosecution, nor all forms of legal liability under civil law, only those specifically enumerated in the policy.

Some policies are more tightly worded than others and while a number of policy wordings are designed to satisfy a stated minimum approved wording, which makes them easier to compare, others differ dramatically in the coverage they provide. For example, breach of duty[clarification needed] may be included if the incident occurred and was reported by the policy holder to the insurer during the policy period. Wordings with major legal differences can be confusingly similar to non-lawyers. Coverage for “negligent act, error or omission” indemnifies the policyholder against loss/circumstances incurred only as a result of any professional error or omission, or negligent act (i.e., the modifier “negligent” does not apply to all three categories, though any non-legal reader might assume that it did). A “negligent act, negligent error or negligent omission” clause is a much more restrictive policy, and would deny coverage in a lawsuit alleging a non-negligent error or omission.

Coverage is usually continued for as long as the policyholder provides covered services or products, plus the span of any applicable statute of limitations. Canceling the policy before this time would in effect make it as if the insured never had coverage for any incidents, since any client could bring any case with regard to any such services or products that occurred before the statute of limitations cut-off point. A break in coverage could result in what is called a “gap in coverage,” which is the loss of all prior acts.