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Contractor professional liability / E&O insurance
Professional liability insurance, also called errors and omissions insurance, protects small construction businesses and contractors against the costs of client lawsuits over unsatisfactory work.
Professional liability insurance covers claims and lawsuits over work mistakes
Contractor and construction mistakes, such as failure to follow a blueprint, can be financially devastating for your client. As a result, your business could be sued to recoup losses. Contractors' professional liability insurance, sometimes called errors and omissions insurance (E&O), will help provide indemnity for legal costs when facing accusations of negligence or errors.
This policy offers liability coverage related to professional services, including:
- Failure to deliver promised services
- Negligence in providing services
- Errors and oversights
Your insurance company can usually add this coverage to a general liability policy, typically for a discounted rate.
Most professional liability insurance policies are written on a claims-made basis. So, in order to collect insurance benefits, your professional liability policy must be active when an alleged mistake occurs and when the claim is filed.
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What can professional liability insurance cover for contractors and construction businesses?
Failure to deliver promised services
Delays are common in the construction industry, but when it affects your client’s bottom line, you could face a lawsuit. If a customer sues a general contractor, plumber, building design professional, or other construction professional for missing a deadline or failing to deliver promised results, a professional liability policy can pay for your legal expenses, such as hiring a lawyer.
Negligence in providing services
If a customer accuses your business of negligence – whether or not you’re at fault – you could face a costly lawsuit. Contractors’ E&O insurance can help with court costs, attorney’s fees, and judgments or settlements when a client questions the quality of your carpentry, electrical, or welding work.
Errors and oversights
If a client claims that your work mistake caused financial damage, you could face a legal battle that leads to bankruptcy or worse. For example, an electrician could be sued for failing to repair faulty wiring that led to a costly reinstall. Your professional liability insurance policy pays for legal expenses related to work mistakes, including judgments if the court rules against you.
How much does contractor professional liability insurance cost?
Construction companies and contractors pay an average of $74 per month for professional liability / E&O insurance.
Insurance costs for construction companies and contractors are based on a few factors, including:
- Type of construction and contracting services offered
- Level of experience and risk exposure in your field
- Where your business operates
- Policy coverage limits and deductibles
- Number of employees
- Liability claims history
Other types of insurance for contractors and construction businesses to consider
While professional liability coverage shields against accusations of work errors, it does not offer complete protection. No matter your specialty, personal injuries and property damage are part of the trade. Other policies to consider include:
General liability insurance: This policy can cover expenses related to customer injuries and property damage, along with advertising injuries.
Business owner's policy (BOP): A BOP bundles general liability coverage and commercial property insurance at a discount. It protects against the most common lawsuits and property damage.
Workers’ compensation insurance: Workers’ comp covers medical costs for work-related bodily injuries and illnesses. Most states require this coverage for businesses with employees.
Commercial auto insurance: This policy covers the cost of an accident involving your business vehicle. Almost every state requires this coverage for business-owned vehicles.
Contractor’s tools and equipment insurance: This policy helps pay for repair or replacement of a contractor’s tools and equipment if they are lost, stolen, or damaged off-site or on route to a construction project.
Surety bonds: These bonds reimburse your clients for financial losses if your company is unable to fulfill the terms of its contract.
Builder’s risk insurance: This policy can pay for damage done to a structure still under construction. It can cover costs resulting from fire, vandalism, on-site theft, and more.
Contractors pollution liability (CPL) insurance: CPL is a type of environmental insurance that covers pollution liability risks for contractors and their subcontractors.
Additional insured endorsement: This extends coverage to anyone other than the policyholder, and can be required by clients, contractors, and subcontractors depending on the project or contract.
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Updated: March 18, 2024
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