During the construction of a building project, contractors and building professionals are protected by contractors' professional liability insurance. The construction and designing of a structure can be a complex undertaking that involves many different parties, such as engineers, architects, contractors, and other experts.

Contractors, Subcontractors, and Third-Party Hires

At times contractors can employ subcontractors or third parties to manage certain tasks in the process, such as the designing, technical evaluations, or other aspects like plumbing and electrical work that require more specialized skill sets.

These services may be provided in-house by larger contractors, which increases profits but also exposes them to greater risk. This type of insurance protects contractors from the risks associated with doing most of the construction themselves.

This type of insurance covers contractors for errors made during the design and engineering process, which is especially useful when numerous professionals are involved.

These policies provide coverage against risks that are not covered by general commercial liability (CGL) insurance, which may exclude professional liability. Professional liability policies offer third-party liability coverage, first-party indemnities, and pollution liability coverage. The policy covers economic loss as well as repair costs.

CPL Coverage

The list of covered activities might be contained in the policy contract, or they can be unique to the contractor who acquired the policy. There may also be a list of activities that are not covered by the policy as well.

Contractors have two options for professional liability insurance: they can buy a standing policy that covers all of their work, or they can get a policy that only covers certain projects with set deadlines.

Builders Risk Coverage vs. CPL

Both builders' risk coverage and contractors' professional liability insurance offer similar levels of protection from the same kinds of risks, losses, and parties engaged in a construction project. However, builders' risk insurance is typically purchased by the project owner, and a contractor's professional liability insurance is typically purchased by a contractor.

A new project without an existing structure could not be eligible for contractor professional liability insurance; however, it may be offered for building improvement projects. At the same time, projects without an existing building might be protected by builders' risk insurance.

The Bottom Line

Professional liability insurance for contractors is created to protect both the contractor and third-party hires, including architects, designers, and engineers, against errors and mishaps on the job.

Small businesses must protect themselves financially against potential damages. A contractor insurance provider can help you find the right insurance coverage for your business.