​Author: Nancy Germond

Many agents insure small artisans and contractors such as plumbers, heating and cooling contractors, and other trade providers. While most contractors understand the need for general liability coverage to protect them, many do not realize that they may have a big gap in coverage. That gap – professional liability insurance. Even if contractors do not create plans or engage in design work, there can be instances where they provide significant professional advice.

Consider the following scenario. A plumbing company offers whole home plumbing inspections for new home buyers while in their inspection period. They want to know the condition of the sewer line, the age of the water heater, or even if the builder correctly tied the sewer line into the city sewer system.

While the plumber is highly experienced, in one case, he misses that the Orangeburg sewer line is extremely degraded, and after the homeowners move in, they soon face a costly sewer line replacement.

As you can imagine, the first phone call from the homeowner to the plumber begins, “I would never have bought the house if you had told us about the Orangeburg sewer line!"

That situation creates no property damage or bodily injury to trigger the general liability policy, and no professional liability policy in place where the plumber can turn. This type of allegation and any subsequent claim would probably not trigger the commercial general liability policy's insuring agreement. Even if the angry homeowner files suit unsuccessfully, the contractor faces costly legal bills to defend himself.

When selling a businessowners policy for smaller artisans and contractors, the same holds true. Without bodily injury or property damage allegations, your contractor could face coverage problems.

COVID Allowed Contractors to Expand into New Service Areas

“Many contractors have expanded their services for a number of reasons," according to Elise Farnham, CPCU, the owner of Illumine Consulting in Texas. “These can include controlling the process more efficiently, to increase revenue, and perhaps to better schedule their work pipeline."

Expansion of services may give rise to exposures for professional liability, especially when contractors add design/build services, Farnham explained. “For instance, the contractor may design [a project's] interior systems. If those systems fail to perform as promised, not only is there exposure for contractual liability, but also for failure to design the systems so that they would provide an agreeable user experience."

When COVID hit, many homeowners used the work-from-home opportunity as a chance to remodel. Consider that same plumber who completes a bathroom remodel, which functions flawlessly. However, the plumber failed to adhere to current Americans with Disabilities regulations, and when the homeowners try to sell the home, this oversight becomes a problem.

Again, there is no property damage or bodily injury, so the general liability policy will probably not respond.

For these reasons, “Smart agents include professional liability coverage when quoting the contractor's commercial general liability (CGL)," according to Farnham.

During COVID, many contractors morphed into other services to take advantage of the home remodeling boom. The expansions can create liability the CGL, or the BOP, would not cover.

For example, restoration contractors may have expanded into stand-alone disinfection services, which can create new liabilities, including pollution issues. Roofing contractors may begin offering consulting services so that condominium associations can triage needed repairs. It is always a good idea to reach out to your artisans and contractors to determine if they have changed the scope of their services.

In another example, many plumbers offer pre-purchase plumbing inspection services for potential home buyers. If the plumber fails to detect a major problem, for example an Orangeburg sewer line that quickly needs replacement post-purchase, the homeowner may come back to the plumber and say, “If you had told me about the sewer line issue, I wouldn't have bought the house!"

Watch Those Exclusions for Residential Work

Some commercial general contractors began taking residential remodeling projects during COVID as homeowners began the work-from-home transition. According to this article by Chris Boggs, many insurance carriers may exclude residential work on the CGL policy. Now is a great time to remind your contractors that if they have begun working on residential projects, to reach out to you. Additionally, they will have a completed operations issue once they have completed their residential projects.

Always offer your contractors the option of a professional liability quote and explain any exclusion for “professional services" on their policies. Document this explanation and your client's rejection in your agency management system.

For a very thorough discussion of professional liability exposures and exclusions, visit this link.

First published: August 5, 2022