What Exactly Does CPLI Cover?

Contractors Professional Liability Insurance

It is a common belief that an error or omission made during the design-build process is covered under a typical commercial general liability (CGL) policy. Although professional liability is not excluded on the basic CGL policy, insurers often add an endorsement to exclude it. A CGL policy covers contractors against bodily injury or tangible property damage due to their professional service, but not economic damages (financial losses). And because the majority of all claims against design professionals are for economic damages, CGL coverage would not apply.

CPLI fills that coverage gap by protecting contractors from claims made due to an error or omission that occurred while they were performing a professional service. Examples of situations in which a CPLI claim may arise include:

     • Improper design of a concrete floor that cracks under the weight
     of a company’s equipment

     • Installation of a heating and cooling system found to be incapable
     of properly ventilating a building

     • A design defect that prohibits a building from being certified

     • A flaw in a building’s structure that causes a business interruption
     in order to have the flaw repaired

Even if a contractor subcontracts the design work and indemnifies the contractor from any liability, CPLI is still a good coverage to have. There are several reasons for this:

     1. The indemnification, also known as a hold harmless clause
     (or provision), may not be enforceable.

     2.If the design company went out of business or no longer carries
     professional liability coverage when the claim is made, the contractor may
     be out of luck and held responsible for the damages.

     3.If the design professional’s policy limits are low or exhausted,
     the contractor may be found liable.

Normally reserved for design professionals, such as architects, engineers or web designers, contractors professional liability insurance (CPLI) protects contractors from claims arising from negligent errors or omissions that occur while they are performing a professional service. This coverage has become increasingly necessary for contractors who have taken on the responsibility of both designing and building.

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