$1M Professional Liability (E&O) Insurance for Commercial Building Inspectors

Commercial building inspectors are often told to show $1M in Professional Liability before a property condition report. It is the most the policy pays per claim, and your contract sets the rest.

What does a $1M requirement mean for commercial building inspectors?

Professional Liability (E&O, short for Errors and Omissions) covers claims that a mistake or missed item in your report cost a client money. A typical clause reads:

• Per claim: the most the policy pays for any one claim. Here, $1M.
• Aggregate: the most the policy pays for all claims in one policy year. Here, $2M.
• Matching the numbers: a $1M/$1M policy does not meet this clause. A $1M/$2M policy matches the limits, but must also meet the other terms, such as the three-year requirement.
• Claims-made: the policy covers claims made and reported while it is active, for work done on or after the retroactive date (the earliest work date the policy covers). See limits explained.

Who asks commercial building inspectors for $1M?

You will often see $1M from:

• Commercial lenders ordering property condition reports before a loan.
• Buyers and investors doing due diligence on a building.
• REITs and fund managers with an approved vendor list.
• Developers hiring you for draw or closeout inspections.

Portfolio deals and institutional lenders may ask for more (see $2M Professional Liability for commercial building inspectors).

How is $1M built?

At $1M, the limit is usually one primary policy (the policy that pays first). If a licensed engineer or architect signs your reports, you may need A&E (architects and engineers) Professional Liability instead. If you also do mold or asbestos surveys, a combined professional and pollution policy may be an option. A commercial umbrella almost never covers Professional Liability.

Before you buy, ask Morrow to review your contract and policy. Four things often cause gaps: an aggregate that does not match the clause, a reliance letter that adds parties the policy does not expect, an environmental exclusion, and a retroactive date that leaves past reports uncovered.

Additional insured status (naming a party on your policy for protection) is often limited or unavailable on Professional Liability. Where a carrier offers it, it usually covers only the client's liability from your work and gives no separate limit. A certificate of insurance is the usual proof.

What will underwriters ask for?

An underwriter is the insurer's decision maker on coverage and terms. They usually ask about:

• Your services, such as property condition assessments, draw inspections (checks of work done before a lender releases loan money), roof surveys and reserve studies (forecasts of future repair costs).
• Building types, such as office, retail, industrial or multifamily, and your largest property.
• Who relies on your reports, and how often you sign reliance letters.
• Staff licenses, and whether an engineer or architect signs reports.
• Revenue, prior claims, and your current policy and retroactive date.

What affects the cost?

• Services and building types. Lender reports and complex buildings usually cost more to insure than simple walk-throughs.
• Reliance and contract terms. Reports many parties can rely on, or contracts that promise results you cannot control, can raise the price.
• Revenue and volume. More reports mean more chances for a missed item.
• Claims history. Prior claims can raise the price.
• Aggregate and retention. A higher aggregate, such as $1M/$2M instead of $1M/$1M, usually costs more. A higher retention (what you pay on each claim before the policy pays, like a deductible) usually lowers the premium.

Frequently asked questions

Do I need $1M Professional Liability as a commercial building inspector?

Often yes, if a lender, buyer or contract requires it. It covers claims that a mistake or missed item in your report cost a client money. Here is a hypothetical. You tell a buyer a strip mall roof has about ten years left. Two years later, it needs full replacement. The buyer says your report hid a large cost and wants you to pay. Many policies pay defense costs inside the limit (see the note above). Many policies also restrict claims about repair cost estimates, so check the wording.

I carry $1M/$1M and the lender wants $1M/$2M. What now?

Request new quotes for a $1M/$2M policy. Morrow can request them and ask that your retroactive date carry over where the market allows, so prior acts coverage (coverage for work done before the new policy starts) stays in place. Many people time the new policy to start by the lender's date and keep the current one until then, so there is no gap. Report anything that could become a claim to your current carrier before that policy ends.

Do I need General Liability too?

Often. Many agreements ask for both. Professional Liability covers mistakes in your report. General Liability covers injury or damage you cause on site, such as a cracked roof membrane.

What if a claim comes in after I close my firm?

A claim made after your policy ends is generally not covered unless you buy an extended reporting period (a "tail"), which adds time to report claims about past work.

This article is general information, not legal advice or a coverage determination. Coverage depends on the actual policy wording, carrier underwriting and your contract terms.