Professional Liability / E&O Insurance

A design-build firm in Irvine delivered a commercial building last year. Six months after occupancy, the HVAC system couldn't maintain temperature in the server room. The client's IT equipment overheated. They lost data and equipment. Investigation revealed the mechanical design undersized the cooling capacity. The client sued for the equipment losses, the data recovery costs, and the cost to redesign and retrofit the HVAC system. Total claim exceeded $400,000. General liability didn't cover it because there was no physical property damage caused by construction operations. Professional liability covered the claim because it arose from a design error.

Professional liability insurance, also called errors and omissions coverage, protects design-build contractors from claims arising from professional mistakes. Unlike general liability that covers physical injury and property damage from your operations, professional liability covers economic losses from your professional services. Design errors, specification mistakes, project management failures, cost estimation errors, scheduling failures. These create liability that GL does not cover.

Design-build contractors face unique exposure because they take single-source responsibility for both design and construction. A traditional general contractor can point to the architect when design problems emerge. A design-build firm cannot. The consolidated responsibility means consolidated liability. Professional liability coverage addresses this exposure.

The coverage applies to design services, engineering, project management, construction administration, cost estimating, scheduling, and professional advice or recommendations. If you provide services beyond simply building what someone else designed, you have professional liability exposure. Many commercial contracts now require E&O coverage even from general contractors who provide any professional services.