Oversimplified: What is Contractor’s Liability?

There are a lot of blogs that talk about the contractor’s liability insurance. However, each time you read one, you might be left with more questions than answers. Today, we’re going to talk about the basics in a “teach it to a fifth-grader” type of way. Let’s get started. 

What is a Contractor’s Liability Insurance?

Contractor’s Professional Liability Insurance, also known as CPL, is a type of insurance that provides general contractors and building professionals with protection from errors. It’s purchased by the contracting businesses acting as the general contractor and generally protects their small business as well as the business owner, the client, and other interested parties. 

It covered errors from the design of the project until the last bolt is made by the general contractor as well as third-party subcontractors like the engineers, architects, and other vendors. 

Third-party Hires

If you want to protect your business, then you need to think about all the risks that you undertake. A major one of them is the third-party vendors and subcontractors that you have to deal with daily. Not only can you make a mistake, but architects, engineers, and all the other subcontractors can as well – and you might be liable!

In-House Subcontractors

If you want to earn more profit and sell yourself as a “do-it-all” company, then you might have an in-house engineering team and an in house design team. In these cases, you will make more profit. However, you will also expose yourself to more risk. 

Worry not though, as CPL will almost always cover these types of subcontracting situations as well. In truth, the more people you have involved in a single project, the better this type of insurance is for you. 

It Covered Different Risks

There are many types of insurance within the construction industry. Two that often get confused are general liability and contractor’s liability. However, general liability insurance covers the general risks that any business will face. Often times, it does not cover the professional liability side. That’s where contractor’s liability comes into play. 

Builder’s Risk Vs. Contractor’s Liability

Another confusing thing that you might come across is builder’s risk versus contractor’s liability. Builder’s risk offers similar protections to contractor’s liability. However, it’s generally taken out by the owner of the project or specifically to protect what belongs to the owner of the project. 

Contractor’s liability is taken out to protect the general contractor from loss should something happen to the site. That said, if you can’t get CPL for any reason, builder’s risk is usually a good replacement option. 

Key Notes: 

  1. Contractor’s Professional Liability Insurance is also called CPL or just contractor’s liability. 
  2. It is taken out to protect contractors and site owners from the mistakes that are made during contraction by the contractor or any of the people they hire. 
  3. Sometimes CPL is denied if the site is too small. However, builder’s risk can be taken out in this case. 
  4. Larger firms with everything under one roof can also benefit from contractor’s liability as the risk they carry from having everything under one roof is generally much higher.