Insurance Tracking Software: Should You Require Professional Liability Insurance?
When utilizing insurance tracking software or tracking insurance by other means, the insurance coordinator usually focuses tracking on four major policies which include: General Liability (GL), Automobile, Workers Compensation and Excess Liability. These major policies are usually tracked and required by most General Contractors. However, there is another piece to the risk management puzzle.
Professional liability insurance can be overlooked and misunderstood by most people. Here is a quick review of professional liability insurance and why you should be using insurance tracking software to enhance your risk management practices.
What is Professional Liability Insurance?
Professional Liability Insurance protects you and your business from claims that might be brought against you if your client has lost money due to your advice or service. If your services have caused your client to lose money due to not meeting project deadlines, faulty work or any other mishap, then you can be sued for “pure economic loss.” Once a claim is made, then your professional liability insurance will help cover the defense expenses (duty-to-defend), and if needed, the damages.
Here is an example: A General Contractor subcontracts the engineering work on a public swimming pool. The construction process is finished on time and the pool is ready to be opened for the summer. However, the engineer’s plans were faulty, and now the pool has a problem draining and filtering water. The client now has to shut down the pool for the summer and loses hundreds of thousands of dollars due to the closing. The client will sue the General Contractor for economic losses, and because there were no bodily, personal or property damages, the General Contractor’s GL policy will not cover the damages. This is why it is important for General Contractors to carry professional liability insurance.
There can be some confusion when trying to understand if the claim should be covered under GL or professional liability policy. In most cases, there will be an endorsement in your GL that has an exclusion of professional liability, thus making the contractor purchase a separate professional liability policy. GL will cover losses caused by “bodily injury,” “property damage,” or “personal and advertising injury.” However, if a project were to cause a client to lose financial earnings due to work done by you or your subcontractors, then you will be liable for the damages.
Should you require subcontractors to carry Professional Liability Insurance?
It would be wise for General Contractors to require their subcontractors to carry professional liability insurance, especially if you frequently use the same subcontractor on multiple job sites and you rely on their work or if you’re subcontracting your work out to engineers or architects. The main reason you should require this policy is because a client can sue both the Sub and General Contractor for pure economic losses. If the subcontractor doesn’t have professional liability insurance and they can’t afford the defense and damages, then the General Contractor will be liable to pay for the damages.
Should you be tracking your subcontractors’ Professional Liability Insurance?
It is really important that if you require your subcontractors to carry professional liability insurance that you track their policies. Unlike most General Liability policies, professional liability is a “claims-made” basis, which means that the contractor has to be insured at the time the claim is made against you. So, if you decided to cancel your professional liability and the client sues your two years later, then you will not be covered. This is why it is important that you keep track of your subcontractor’s insurance policies. This can be easily accomplished with insurance tracking software as it can provide custom templates to assist you in your tracking efforts.