As the economy continues to improve, contracting work is starting to pick up. It is a competitive market which puts pressure on contractors to do more jobs in a shorter amount of time. At the same time, the construction industry continues to see a shortage in skilled labor according to the Bureau of Labor Statistics. These factors can cause contractors to make costly errors in their work from which, in some cases, small artisan contractors cannot recover.
The majority of contractors are required to have a written contract called a Commercial General Liability (CGL) policy. However, the standard ISO form excludes coverage for “your work,” “your product,” or “impaired property.” As a business owner, these items are considered part of your cost of doing business, but these exclusions can also leave you exposed when mistakes are made on the job. These coverage gaps can be filled by a Contractors Errors or Omissions policy. This coverage provides coverage for claims made by a third party alleging property damage caused by a contractor’s “wrongful act” in rendering or failing to render “contracting services ” as defined in the policy. It is important to note that this is not a professional liability policy which is typically specifically excluded by Contractors E&O policies. For example, a professional liability policy would cover exposures in construction management and design projects where Contractors Errors or Omissions coverage would cover the actual construction work. Some other differences between a standard commercial general liability (CGL) policy and a Contractors E&O policy are:
- CGL covers bodily injury, personal injury, advertising injury, and property damage where Contractors E&O is limited solely to property damage.
- CGL provides coverage for damage to work performed on behalf of the named customer by a subcontractor. A Contractors E&O typically excludes work performed by subcontractors.
- Contractors E&O is typically applied on a claims-made basis and is likely subject to a deductible versus a CGL policy that may also be applied on an occurrence basis.
Every time you take on a project, you take on the risk of a customer dispute. In today’s litigious environment, don’t let the threat of a lawsuit put your business and reputation in danger. Ask your independent agent about E&O coverage today.