Yes, coverage of some professional liability exposures is available under the
commercial general liability (CGL) policy, depending on how the policy is
modified by endorsements. Unfortunately, many insurance professionals offering
insurance and risk management services to contractors are still not sure about
the differences between the various alternatives available to their clients for
professional liability under the CGL policy.
There are vast differences between the CGL and a common contractors
professional liability (CPrL) policy, such as:
- The CGL is an occurrence-based policy while the CPrL is always
claims-made.
- The CGL policy provides no limit for payment of defense costs while the
CPrL limits total payment, including defense, to the limit of liability
purchased.
- The CGL usually carries a lower deductible, if any at all, and many CPrL
programs typically apply a $25,000 per-claim deductible or higher.
- The CGL responds to bodily injury and property damages, while the CPrL
responds to a broader form of damages.
- Most insurers writing general liability coverage for contractors attach
professional liability exclusions to their policies as a matter of
course.
With that said, it is important to understand how these differences
influence organizations to purchase CPrL in addition to the CGL. One
of the prominent benefits is the difference in covered damages. The CPrL
provides broad coverage for damages—defined differently by each insurer but
generally defined as a monetary judgment, award, or settlement of compensatory
damages and where allowable by law, punitive damages; whereas the CGL is much
more restrictive. The CGL provides coverage only if bodily injury or property
damage occurs. Keeping it simple, economic damages, such as acceleration costs,
delay damages, cost for remedial design, reconstruction, and the like arising
out of professional services performed by or on behalf of the named insured
would not be a covered loss under the CGL but would be covered under the
CPrL.
One of the deciding factors determining whether the CGL will respond to
professional liability is the insurer—its underwriting philosophy with respect
to contractors' professional exposures, and the scope of professional
exclusions it customarily endorses onto the policy. Almost all CGL insurers now
insist on some sort of professional liability exclusion when a policy is issued
to a contractor. Not all insurers offer the two less restrictive standard
Insurance Services Office, Inc. (ISO). Nonetheless, the availability of CG 22
79 or CG 22 80 as an alternative to a sweeping professional exclusion like CG
22 43 should be explored with each CGL insurer to determine its willingness to
offer such coverage.
Let's examine the three endorsements commonly used by insurers to define
the CGL policy's professional liability coverage for contractors.
- CG 22 43—Broad Professional Liability Exclusion Endorsement (loosely
interpreted)
- CG 22 79—Construction Means and Methods Endorsement (loosely
interpreted)
- CG 22 80—Design Build Endorsement (loosely interpreted)
Most contractors shopping for CGL coverage will have to accept one or
another of these endorsements, depending on the insurer's willingness to
insure a range of contractors' professional liability exposures.
Endorsement CG 22 43
ISO endorsement CG 22 43 is pretty straightforward. It is a broad exclusion
of professional services performed by or on behalf of the named insured. If
this exclusion is attached to the CGL, and the contractor is providing any of
the professional services defined in the exclusion, it would be prudent to have
this exclusion removed and replaced with either CG 22 79 or CG 22 80, and
explore the need for CPrL coverage.
Endorsement CG 22 79
This less restrictive endorsement was developed to correct the
deficiencies of CG 22 43 with respect to construction means, methods,
sequences, and techniques of the contractor. Simply put, construction means and
methods are those processes or techniques that contractors use during the
course of construction to construct a building or structure. Endorsement CG 22
79 excludes coverage for professional services defined within the endorsement
as:
- preparing, approving, or failing to prepare or approve, maps, shop
drawings, opinions, reports, surveys, field orders, change orders, or
drawings and specifications; supervisory or inspection activities performed
as part of any related architectural or engineering activities.
However, it does provide some level of coverage for the construction means
and methods with an exception to the definition of professional services:
- Professional services do not include services within the construction
means, methods, techniques, sequences and procedures employed by you in
connection with your operations in your capacity as a construction
contractor.
No doubt, this affirmatively broadens coverage for a contractor as compared
with the use of CG 22 43, but there is a limiting factor associated with it.
The operative phrase in the above exception is "employed by you in
connection with your operations." While the intent of this endorsement is
to provide coverage for services within the construction means, methods, etc.,
it is apparent that if professional services related to construction
means/methods were performed on behalf of the contractor, coverage may
not exist.
For example, claims arising out of the design of false work on a bridge
project performed by a licensed professional engineer subcontracted with the
general contractor (GC) may not be covered under this endorsement if the GC had
this endorsement on the policy.
Another example would be shoring/trenching on a parking structure project.
Had a subcontractor performed the design for the shoring/sheeting on the
project, the GC would have no coverage as the work was not performed by the
named insured. In essence, this endorsement provides virtually no coverage for
those GCs that perform no work. However, in the event the subcontractor has the
CG 22 79 attached to its CGL policy and provides additional insured status to
the GC, the GC may have some level of protection regardless.
Although there is some element of coverage for professional liability, this
endorsement still falls short of adequately addressing professional liability
associated with various professional services performed by many construction
firms such as construction management, pre-construction consulting services and
design-build services.
Endorsement CG 22 80
ISO endorsement CG 22 80 was created to address professional liability
exposures for contractors while performing design-build services or for any
professional services performed on their behalf. It provides coverage for
professional services, as defined in the endorsement, performed on the named
insured's behalf. It explicitly excludes coverage for professional services
performed by the named insured.
Although the endorsement does provide enhanced coverage, it does have its
limitations:
- It only provides coverage for bodily injury and property damage—the basis
for the CGL coverage form. This is extremely important to remember:
it does not provide coverage for economic damages.
- It does not provide coverage for professional services performed by the
named insured, which may be construction management, pre-construction
consulting services, value engineering, scheduling, inspection services,
subcontractor management, etc.
In summary, as long as the CGL insurer is willing to forgo the use of
exclusionary endorsement CG 22 43 in favor of CG 22 79, CG 22 80, or both
(depending on the professional services provided by the construction firm), it
would be a prudent first step in attempting to address a contractor's
professional liability. Even if it only allows for payment of defense costs, it
is a huge advantage, since all CPrL programs cap the limit of liability at the
aggregate limit of the program purchased.
Don't fool yourself, however. There are many limitations to the
endorsements, primarily due to the fact that the CGL only covers bodily injury
and property damage. To fully insure a contractor's professional liability
exposure, CPrL coverage should be investigated.