Know Your Policy: E&O Insurance for Construction Professional

KNOW YOUR POLICY Key Terms: E&O Insurance for Construction Professionals Construction risk extends well beyond jobsite injuries and physical damage. Design decisions, subcontractor errors, and project management oversights can create liability exposures that may not become apparent until months or years after a project is completed. While construction firms typically carry Commercial General Liability (CGL) Insurance to cover third-party property damage and bodily injuries, many losses in this industry stem from professional services and faulty work.

Professional Liability Insurance, also called Errors & Omissions (E&O) Insurance, can be a critical component of a Construction Insurance solution and can respond to financial losses caused by alleged errors in professional services. For architects and engineers, this coverage is typically written on a dedicated Architects & Engineers (A&E) Insurance policy. Additional policy features and endorsements can also significantly impact how a loss is covered. Understanding professional services exposures — and how insurance coverage may respond — is essential to protecting against unexpected financial loss.

Unlike CGL Insurance, which is typically written on an occurrence basis, Professional Liability Insurance is usually written on a claims-made basis, meaning coverage is triggered when a claim is reported.

Maintaining continuous coverage, preserving the retroactive date, and utilizing Extended Reporting Period options are critical to avoiding gaps, particularly when defects are discovered after project completion.

Contingent Bodily Injury Provides limited coverage for bodily injury arising from professional errors, which would typically otherwise fall outside traditional Professional Liability Insurance policies.

Contingent Property Damage Provides limited coverage for third-party property damage arising from professional errors, which may otherwise fall outside traditional Professional Liability Insurance policies.

Excess Liability Insurance Provides additional liability limits above and beyond those included on underlying CGL Insurance and Professional Liability Insurance policies.

Extended Reporting Period / Tail Coverage Allows claims to be reported after a Professional Liability Insurance policy is canceled or expires. Often critical in construction, where defect claims may surface years after project completion. Without an Extended Reporting Period, claims first made after a policy ends may not be covered, even if the work was performed while coverage was in force.

Faulty Workmanship Exclusion A common exclusion in CGL Insurance policies that eliminates coverage for the cost of repairing or replacing a contractor’s own defective work. Coverage may be added in multiline Professional Liability Insurance programs.

Owner-Controlled Insurance Program (OCIP) / Wrap-Up Insurance A consolidated insurance program purchased by a project owner to cover multiple contractors and subcontractors under one set of policies for a specific project. Often utilized for large projects.

Protective Indemnity Designates a separate limit within a Professional Liability Insurance policy to respond to errors arising from subcontracted professional services.

Rectification Coverage Pays for the cost of correcting a professional error, including redesigning plans or repairing work, before a claim or lawsuit is filed.

Reputational Damage Sublimit Provides limited coverage for crisis management, public relations, and related expenses following an incident that harms a company’s reputation. Could include costs associated with managing media attention or restoring client confidence after a high-profile claim.

Retroactive Date The date after which professional services must be performed in order for a claim to be eligible for coverage under a claims-made Professional Liability Insurance policy. Work performed prior to the retroactive date is not covered. Maintaining an appropriate retroactive date is critical when changing carriers or renewing coverage to avoid gaps.

Vicarious Liability for Subcontractors Extends Professional Liability coverage to claims arising from the errors of subcontractors involved in a project. Not automatically included in all policies.

Withheld Fees Coverage Reimburses lost income when project owners withhold payment during disputes related to alleged design or construction errors.

For additional insights on E&O Insurance, visit burnsandwilcox.com/specialties/errors-omissions

This commentary is intended to provide a general overview of the issues contained herein and is not intended, nor should it be construed, to provide legal or regulatory advice or guidance. If you have questions or issues of a specific nature, you should consult with your own risk, legal, and compliance teams.