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Term: Contractors Professional Liability Insurance

11 Feb 2015

DEFINITION OF ‘CONTRACTORS PROFESSIONAL LIABILITY INSURANCE’
Liability insurance that provides coverage to contractors and building professionals for construction errors. Contractors professional liability insurance, or CPL insurance, is purchased by contractors that provide design and building services, and provides coverage of errors made by the contractor as well as errors made by third-parties hired by the contractor, such as engineers.

INVESTOPEDIA EXPLAINS ‘CONTRACTORS PROFESSIONAL LIABILITY INSURANCE’
Designing and building a structure can be a complex process involving many parties, including architects, designers, engineers, building contractors, and other building specialists. In the past, contractors would hire third parties to handle different aspect of a project, such as design work or engineering evaluations. Today, many contractors provide these services in-house, which allows them to earn more profit but also exposes them to more risk. Contractors professional liability insurance is designed to protect contractors from these risks.

CPL insurance protects contractors from errors created during the design and engineering process, and is especially useful when projects have many professionals involved in different aspects of the project. This type of insurance is usually reserved for contractors that provide design-build or construction management services.

Policies are designed to cover risks not covered by commercial general liability (CGL) insurance, which may not include professional liability exclusions. The professional liability policy offers third-party liability protection, first-party indemnity, as well as pollution liability. Damages that are covered include economic loss and costs associated with repair.

The activities covered under the policy may be included in a list found in the policy contract, or may be specific to the contractor that has purchased the policy. Many policies will also include a list of activities that are excluded from coverage.

Contractors can purchase a standing professional liability insurance policy that covers all work that the contractor performs, but can also purchase a policy that covers specific projects with finite time frames.

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