The Contractor’s Worst Nightmare
“Cold sweat at night stuff”
Folks, it’s not my job to scare you. It’s my job to inform you of the perils associated with any risk. Like a good parent, you give your youngster a little rope to feel the tightness, but not so much that they hang themselves. Playing in traffic doesn’t usually end well. Not making sure you understand the difference between Professional Liability and General Liability is like trying to cross I-95 south at I-695 at 4:30 pm. You may dodge a box truck in the left lane and make it, but you also may get mowed over by a smart car in the right lane.
Onto the risk at hand. Most contractors hold themselves out as professionals. Those that carry a license are even more susceptible to Professional Liability claims. The old rule of thumb is that, if you must be licensed, there must be a reason. Courts look at those that have to pass a test are held out to be a professional in their trade.
Now we move to the examples and differences between Professional vs. General Liability.
It’s a simple concept – General Liability pays for property damage and bodily injury as a result of your negligence.
We know all the case examples:
“ABC Plumbing installs a faulty pipe joint in a ceiling and, after two months, the leak is discovered after the homeowner calls and says that drywall is laying on the dining room table during a dinner party for twelve.”
“ABC Home Improvement & Contracting builds a deck on the back of a client’s house and it collapses with the weight of snow one winter evening, causing damage to the furniture set below.”
“ABC Janitorial cleans a floor, but forgets to put the WET FLOOR sign up and a customer slips and falls, breaking their hip.”
However – the grey storm clouds roll in when the waters start to muddy and there is no clear bodily injury or property damage. This is the gap usually picked up by professional liability coverage.
Let’s look at three REAL LIFE examples of claims that have been paid by my carriers, using this often overlooked coverage.
ABC Air Conditioning lands a nice commercial job at a building that is owned by a nationally renowned yoga expert. She is leasing the first floor of her brand new brick building in the suburbs of Maryland. She will be occupying the whole 5,000 square feet on the 2nd floor. ABC Air Conditioning meets the building owner and specs the job. He recommends a certain sized unit to air condition the building. The building will be ready for occupancy on August 1st. The building owner spends $20,000 on advertising for the grand opening and is taking pre-orders for memberships at $500 per member. She has signed up 200 members for a total of $100,000. As the day approaches a heat wave is forming. On August 1st, the building owner goes in at 3 am. To cool the 2nd floor and it won’t go below 80 degrees. Although many that practice yoga, love warm sessions the expectation is that the common areas will be cool. The grand opening is a major failure. The building owner loses members who are disappointed that they gave their money and can’t use the facility. Most are asking for refunds. The contractor called his agent to file a claim for a poor recommendation of unit size and was covered for $1,000,000 because he bought professional liability.
Design Error — the contractor made a cost estimate of $2 million for a warehouse project. A loading platform was later found to be inadequate to meet the stated needs of the warehouse. With the revisions, the project cost $2.5 million. The contractor was held liable for the $500,000 difference.
Construction Management — a contractor failed to detect the faulty workmanship of a masonry contractor who placed hollow concrete block without proper re-bar reinforcement as specified in the plans. Once discovered, the structure had to be torn down and rebuilt at a cost of approximately $1 million plus resulting delays in project completion. You are responsible for your subs!
The big issue is Economic Loss. There are significant financial risks that contractors assume by promising to deliver a project complete, on time, and within budget. This is where the issues arise. When businesses lose money because of your mistake, they get a lawyer, and get even.
Surprisingly, it’s very affordable and it provides a legal defense inside of the policy. So if you don’t think you did anything wrong, it will guarantee you a lawyer and cover your legal fees.
Sleep well and check out Contractors Errors and Omissions Coverage today!