In the dynamic world of construction, contractors play a vital role in bringing projects to life. From pre-construction estimating to project management, their expertise is critical to the success of a project. However, those contractors providing professional services are also creating an often-overlooked area of professional liability exposure that can generate claims from third parties for negligent misrepresentation. Therefore, contractors must consider the role of their Contractor’s Professional Liability coverage in mitigating their exposure. In today’s construction projects, Contractor’s Professional coverage cannot be viewed only as a ‘design’ or ‘design build’ issue anymore.
Understanding the Challenge
Even when not directly involved in design work, contractors providing professional services are exposed to third-party claims. This exposure arises from the information contractors generate when providing professional services, knowing it will then be used by others, including third parties, in the construction process. This risk exposure is greater when contractors are using incomplete drawings and specifications, often due to design bottlenecks. These risks can result in third party claims for negligent misrepresentation.
The Legal Landscape
Legal concepts like "Restatement 552" govern these misrepresentation claims. All states follow, to some degree, the concepts of Restatement 552, which allows a contractor to be held liable for information supplied for the benefit and guidance of others, when those parties incur damages because of their “justified reliance” upon that information. For example, this exposure is present when contractors provide services to a client, like estimating or scheduling, and the information generated is then relied upon by third-party project stakeholders, such as the client’s lenders, separate contractors, or bidders. In some states, this liability extends even if it’s only foreseeable that a third-party might rely on the information.
The Role of Contractor’s Professional Coverage
Contractors face a unique challenge when it comes to insurance coverage, especially in this professional services context. Failure to properly consider this exposure can leave a contractor with an uninsured claim. While many contractors carry Commercial General Liability (CGL) policies, these policies often exclude coverage for professional services. This gap highlights the need for Contractor's Professional coverage, which specifically addresses the risks associated with providing professional services and the resulting economic damages. Importantly, GCL policies only cover bodily injury and property damage, they do not cover solely economic damages. This point is critical because most, if not all, professional claims are solely for economic damages.
Practical Considerations
When evaluating this professional exposure, contractors should ensure the policy covers stand-alone advisory services, pre-construction activities, as well as services provided as part of a contractor’s “means, methods and techniques” during the construction phase. It is also important to ensure that the policy's definition of "professional services" aligns with the type of services being provided by the contractor. When evaluating Contractor's Professional coverage, contractors should work closely with their insurance brokers to understand policy exclusions and confirm coverage limits are appropriate for the volume of work provided. Finally, Contractors should also consider the role of "rectification" coverage, which can help correct fund the remediation of errors or omissions in professional services.
Conclusion:
In conclusion, Contractor's Professional coverage is essential for all contractors involved in professional services, not just those engaged in 'design assist' or design build work. As construction projects become more complex, contractors must protect themselves against potential liabilities. By investing in the right insurance coverage, contractors can mitigate risks and focus on what they do best—building the future.
