Contractor's professional liability insurance is a facet of the construction industry that continues to blossom. This growth is good news in many ways. It provides the opportunity for more thorough coverages, more competition and an ability to obtain better overall coverage than ever before.
However, the growth of contractor’s liability insurance also highlights some common pitfalls that its owners can be subject to if they are not careful. The Insurance Services Office (ISO) regulates contractor’s liability insurance for the entire industry. Even so, each policy can be different. Each insurance carrier has different standards, provisions and exclusions that can take a loss that is entirely covered by one policy and make it into one that is not covered at all under another policy.
One of the most important areas things to watch out for is a gap in coverage. Assuming that one coverage covers all of a contractor’s insurance risks is a dangerous mistake to make. The purpose of contractor’s professional liability coverage is to protect the contractor against any design flaws caused by them or a third party. It is a critical coverage by all means, but does not always provide for every type of unexpected incident that might occur on the job site.
A coverage that can be essential in bridging that coverage gap is pollution coverage. The purpose of pollution coverage is to protect against damages incurred from pollutants in the course of construction. Damages can include injury to a person, damage to property and even cleanup. Sometimes pollution coverage is included in a contractor’s professional liability policy, but other times it is not and has to be purchased as a separate policy. Knowing whether or not the policy contains coverage for pollution introduces us to another area in which to be cautious.
There is nothing more essential in the process of making sure that the business has the coverage it needs than knowing the specifics of the coverage it has. An understanding of what each coverage includes, as well as ensuring that it is fully comprehended how each coverage works in the event of a claim, is imperative to making sure the policy properly covers needs. Policy language can include lots of jargon and unclear terms, so stay informed by asking the agent for clarification on anything that is not understood.
Along with ambiguous language, word definitions can be another trip-up. Some insurance terms can have different definitions from carrier to carrier. Placing a different meaning behind the same insurance term can lead to entirely different coverage than expected in the event of a claim. A perfect example of this is auto insurance, where many people use the term “full coverage” loosely. Some use the term to mean physical damage coverage and to others it implies that policy includes every single coverage available. Pay attention to any words that may have a vague meaning.
Exclusions to the policy can be a big game-changer regarding whether or not the company is covered. Knowing the specifics of any policy exclusion on the contractor’s professional liability insurance policy creates more awareness of possible coverage pitfalls. Not only can exclusions render coverage useless in certain situations, but violations of some exclusion can also result in insurance fraud.
The best step toward ensuring that a policy covers everything it needs to do is to make sure that it is clearly understood what the policy covers and what it does not. If questions remain, contact the company’s insurance agent.
Anthony Kammas is a Partner at Skyline Risk Management, Inc. He serves as the secretary-elect of the Professional Insurance Association (PIA) of N.Y., is a member of the Hellenic American Chamber of Commerce and a member of the Hellenic American Leadership Council. With over a decade of property and casualty experience, Anthony is an industry leader specializing in real estate and construction insurance. In 2015, new construction costs in New York City for residential projects grew to an all-time high of $18 billion. Anthony and Skyline Risk Management procured insurance for almost $1 billion of that total cost in 2015.