What is Contractors Professional Liability Insurance?
Contractors professional liability insurance is liability insurance that provides coverage to contractors and building professionals for construction errors. Contractors professional liability insurance, or CPL insurance, is purchased by contractors that provide design and building services and includes coverage of mistakes made by the contractor as well as errors made by third-parties hired by the contractor, such as engineers, architects, and other vendors.
Understanding Contractors Professional Liability (CPL) Insurance
Contractors professional liability insurance, or CPL insurance, protects contractors and building professionals in case construction errors occur during construction of a building project. Designing and building a structure can be a complicated process involving many parties, including architects, designers, engineers, building contractors, and other building specialists.
Contractors and Third-Party Hires
Contractors may hire third parties to handle different aspects of a project, such as design work or engineering evaluations, along with hiring subcontractors to do aspects of construction that require specialized skills, such as plumbing, electrical work, or drywalling.
- CPL may be taken out to protect contractors from mistakes made by third-party vendors associated with a project, as well as other losses related to repairs.
- Larger contractors who offer multiple in-house services, such as home design, may expose themselves to more risks on a job, and CPL insurance is also designed to protect these large firms.
- CPL insurance may not be available for a new project with no existing structure, but builders risk insurance can be taken out in those situations.
Larger contractors may provide these services in-house, which allows them to earn more profit but also exposes them to more risk. Contractors professional liability insurance is designed to protect contractors from these risks when they do most of the construction duties themselves.
CPL insurance protects contractors from errors created during the design and engineering process and is especially useful when projects have many professionals involved in different aspects of the project.
CPL insurance is usually reserved for contractors that provide design-build or construction management services.
Policies are designed to cover risks not covered by general commercial liability (CGL) insurance, which may not include professional liability exclusions. The professional liability policy offers third-party liability protection, first-party indemnity, as well as pollution liability. Damages that are covered include economic loss and costs associated with repairs.
What is Covered Under CPL?
The activities covered under the policy may be included in a list found in the policy contract or may be specific to the contractor that has purchased the policy. Many policies will also include a list of activities that are excluded from coverage.
Contractors can purchase a standing professional liability insurance policy that covers all work that the contractor performs, but can also buy a policy that covers specific projects with finite time frames.
CPL vs. Builders Risk Coverage
Contractors professional liability insurance and builders risk coverage both protect similar sets of conditions, types of loss, and entities involved in a building project. However, contractors professional liability insurance is usually taken out by a contractor, while builders risk coverage is generally taken out by the owner of the project.
In addition, contractors professional liability insurance can be taken out on building improvement projects, but may not be available for a new project with no existing structure. At the same time, builders risk coverage can protect projects that don’t have an existing structure.
The Bottom Line
Contractors professional liability insurance provides coverage that protects both contractors and third-party hires, like architects, designers, and engineers, in case of errors and mistakes made on the job, as well as other losses during a building project.