Construction Professional Liability (CPL) Insurance in Construction

Construction Professional liability (CPL) insurance is a type of insurance that provides coverage for businesses against claims that arise due to errors and mistakes in construction work. It comes under the category of protection for injuries and damages due to day-to-day construction operations.    

Professional liability insurance is a type of liability insurance developed for businesses that professional service or advice like engineering, architecture, construction management, surveying, or any construction work related to a project.

Purpose of Construction Professional Liability Insurance (CPL)

A CPL insurance provides financial protection when errors or mistakes occur, and the client is dissatisfied with the work performed. The claim from the client can be incurred due to:

1. Work errors
2. Incomplete delivery of work
3. Negligence of work  

Construction Professional Liability Insurance will help the contractors and owners from design-driven risk exposures, and related losses.   

A contractor may hire third-party contractors to handle different aspects of projects. Hence, CPL insurance protects contractors from mistakes and losses made by third-party vendors.   

CPL insurance is a life saver for large construction firms who are associated with critical facility management in construction, like multiple in-house services like home design.   

What does Professional Liability Insurance Cover and not Cover?

CPL Insurance Covers	CPL Insurance does not Cover
Work Errors and Mistakes	Those liabilities that are covered under Commercial General Liability Policy (CGL)
Failure to do Work Performance	Property damage
Uncompleted Work	Bodily Injuries
Negligence	Personal and advertising injury
Misrepresentation	Intentional and illegal acts
Violation of good faith and fair dealing
Inaccurate Advice

Features of Construction Professional Liability Insurance (CPL)

The contractor purchases CPL insurance as:

1. that covers all the work that a contractor performs ( standing professional liability insurance policy) or as
2. that covers specific projects with finite time frames.

Professional liability insurance is written on a claims-made basis. An event that has led to a claim, must occur before the active date of the policy. Hence, when taking the insurance policy, the time frame must be kept for a long-term period. If a client discovers errors or omissions long after the work completion, the insurance can be claimed with no issue. Hence, it is necessary to maintain active insurance to avoid the possibility of denial in the future. 

Professional liability insurance has two limits, occurrence and aggregate limit. It is represented as occurrence/aggregate. For example, a $3M/6M policy pays $2 million for any one claim made during that period. This is called an occurrence limit. The occurrence limit is the maximum amount the insurer pays for any one claim made during the life of the policy. 

In the example, $5 million is paid for all the claims during the policy's lifetime. This is the aggregate limit. It s the maximum amount the insurer pay in claims for the lifetime of the policy ( usually it is 1 year). 

Cost of Professional Liability Insurance

Construction and contracting professionals pay a median of $85 per month for professional liability insurance.

The cost of professional liability insurance is dependent on the:

• Type of business
• Industry
• Coverage limits
• Location
• Number of employees

As a construction professional, do not underestimate the risks, errors, and mistakes possible that can cause client financial losses. CPL is always used to complement commercial general liability insurance to protect the contracting firm from lawsuits filed by a dissatisfied client.

Also Read: What is Construction Insurance? Who Needs Construction Insurance?