In the construction industry, it’s well known that workers’ compensation and general liability insurance is a must-have. These policies cover injuries to site crew members or others involved in construction projects. Because this type of work can be dangerous—it’s more common than you think for someone to accidentally get a nail in their hand, fall off a ladder, or have building materials come falling down on top of them—contractors generally have very good general liability policies.
The issue arises when these companies feel a false sense of security, thinking that they are covered in almost any circumstance. What general liability policies don’t cover are financial liabilities that can come from overlooking a faulty design, implementing faulty enhancements—such as green materials—or employing contractors or a third party to help with a specific job.
If you operate a business in the construction space, professional liability coverage should be a priority for you, every contractor your organization works with, and any vendors you purchase supplies from. It might seem like overkill, but we’ll break down exactly what can happen when you’re left uncovered.
Changing with the Industry
As the construction industry has changed, the coverage needs have changed with it. There used to be a clear delineation between who owned the design of a project and who was responsible for bringing that to life. But today, that line is blurrier than ever. Design errors, field changes to the design, subcontracted designs, timeline delays, and related issues can all put financial liability on the construction company itself.
Even if no person is getting hurt, and no workers’ compensation claim is filed, clients and impacted businesses can seek financial damages if the situation qualifies. Businesses operating in the construction field need to cover their bases with due diligence at every step of a project’s process, but as a safety net, a professional liability insurance policy should always be active.
Industry Acceptance Today
Despite a large gap in coverage existing for most contractors and construction companies—a gap that can be filled with professional liability insurance—many in the industry have opted to forego this type of coverage. According to the 2023 Construction Benchmark Report conducted by The Mahony Group, only 20% of businesses in the construction world have professional liability insurance.
Up from 13% in the previous survey, these numbers are still shockingly low. If 80% of businesses lack this type of coverage, they are exposing themselves to financial liabilities that could potentially threaten the viability of their business. When it comes to construction issues—whether they come from upstream design flaws or something else—the financial implications are extensive and costly. It’s best to be covered.
Pollution and Professional Liability Bundles
Another type of insurance that many organizations in the construction space take out in today’s landscape is pollution insurance. These policies cover issues where hazardous materials leak, chemicals pollute surrounding communities, and similar events. With construction, waste and pollution are often byproducts of the job. Although companies should take all precautions to prevent these types of liabilities, having insurance coverage is recommended.
On the market today, we are seeing an increase in bundled packages that offer both pollution and professional liability insurance coverage. When purchasing these together, businesses usually pay less than they would if they purchased each policy separately. There are a lot of unknowns that can happen in this field. Keeping up to date with insurance to protect your organization from the unknown will pay off in the long run.
Professional Liability Insurance and Other Industries
It’s not just construction companies and contractors that should invest in professional liability insurance. Designers, architects, property management companies, and even consulting firms should take out professional liability policies. In any situation where you could impact the outcome of a project or assume responsibility for a major decision that might result in financial loss, professional liability insurance will be key.
Litigation, especially in the United States, has become so prevalent across the board. You may think that your customer would never go after you for financial losses within that specific project, but it’s never guaranteed. In the same way you have personal health insurance to cover you “just in case” something goes wrong, your business should have professional liability insurance.
Getting the Coverage You Need
If you’re not sure where to start when it comes to business insurance beyond general liability insurance, work with an experienced broker to get the right coverage for your needs. You’re not expected to know it all, but as a business leader, you are expected to plan for the worst. The right insurance policies can mean the difference between a blip on the radar and a ship-sinking blow. Take the time to get it sorted before an incident occurs.
Additional Background References:
- https://www.oswaldcompanies.com/media-center/do-contractors-need-professional-liability-insurance/
- https://axaxl.com/fast-fast-forward/articles/professional-liability-on-the-construction-project_are-you-covered
- https://www.mahoneygroup.com/contractor-professional-liability/
- https://www.mahoneygroup.com/wp-content/uploads/2022/12/2023-Construction-Benchmark-Report.pdf
