$1M Professional Liability (E&O) Insurance for Construction Managers

For construction managers whose owner, lender or developer wants proof of coverage: $1M in Professional Liability (E&O) pays covered claims that your advice or services caused a client a financial loss.

What does a $1M requirement mean for construction managers?

Professional Liability (E&O, short for Errors and Omissions) covers claims that your advice or services caused a client a financial loss, such as a bad estimate or a missed schedule conflict. Estimating coverage is usually limited if you guaranteed the cost. A typical clause:

• 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. A $1M/$1M policy does not meet this clause.
• Claims-made: the policy covers claims made and reported while it is active, for work done on or after the retroactive date (the earliest date of work the policy covers). See claims-made vs occurrence.
• Years after completion: claims often surface after the building opens, so you must keep coverage in force. (Substantial Completion means the project is ready for use.)

Who asks construction managers for $1M?

You will often see $1M from:

• Private owners and developers.
• Property managers and real estate investment trusts (companies that own rental property) hiring a construction manager.
• Some construction lenders, as a loan condition.

Larger jobs often call for more. See $2M Professional Liability for construction managers.

How is $1M built?

At $1M, the limit is usually one primary policy (the policy that pays first), with no excess layers (extra policies above it). A $2M requirement usually means a higher primary limit, or a primary plus follow-form excess (excess that matches the primary's terms).

The right form depends on your role. Agency construction managers advise the owner and usually buy a construction management form. At-risk construction managers hold the trade contracts (the contracts with the builders) and promise a capped price (a guaranteed maximum price), so they may need contractors professional liability. If you also design, you may need A&E (architects and engineers) coverage.

Before you buy, check your contract and policy for gaps. Morrow can review them with you. Common gaps:

• A form that excludes construction work.
• A retroactive date that leaves out past projects.
• A contractual liability exclusion (a carve-out for liability you take on by contract) that clashes with your indemnity clause (a promise to cover the other side's losses).

A commercial umbrella almost never covers Professional Liability (see does an umbrella cover Professional Liability?).

Professional Liability forms usually do not include additional insured status (listing the owner on your policy to share its protection). Some policies may cover the owner only for liability that comes from your work, meaning your mistakes that the owner is held responsible for. Availability varies by policy and underwriting.

Contracts often ask for a certificate of insurance (a one-page proof of your coverage) instead. A certificate usually only shows that coverage exists. It typically gives the holder no rights under the policy.

What will underwriters ask for?

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

• How much of your work is agency (advisory) versus at-risk, and whether you self-perform work.
• Project types, such as offices, multifamily, condos or healthcare, and your largest project values.
• Services you provide, such as estimating, scheduling or pay application (a builder's monthly bill for work done) review.
• Your contracts: who writes them, the level of skill promised (the standard of care) and any indemnity wording.
• Prior claims, possible claims, and your current policy and retroactive date.

What affects the cost?

• Delivery method. At-risk and self-performed work usually add exposure compared with advisory work.
• Project mix. Condos and healthcare usually cost more than simple fit-outs.
• Fees and project size.
• Claims history. Prior claims can raise the price or narrow options.
• Policy terms. $1M/$2M usually costs more than $1M/$1M. A higher retention (the amount you pay per claim before the policy pays, like a deductible) usually lowers the premium.

Frequently asked questions

Do I need $1M Professional Liability as a construction manager?

Often yes, if your contract asks for it, because your advice can cause a financial loss that general liability does not cover. Hypothetical examples: an owner's representative approves a pay application for work not yet done. A preconstruction estimate comes in far below the bids.

Doesn't my general liability policy cover construction management errors?

Usually not. It covers bodily injury and property damage, not a financial loss from your advice. See Professional Liability vs general liability.

Is $1M/$1M enough if my contract says $1M/$2M?

Usually not, because the contract asks for a $2M aggregate. Request new quotes for a $1M/$2M policy. Morrow can ask carriers to keep your retroactive date and prior acts coverage (coverage for work done before the new policy starts) where the market allows. Many people keep their current policy until a new one starts, so there is no gap. Report anything that could become a claim to your current carrier before switching.

What happens to Professional Liability coverage after the project ends?

Coverage usually continues only while a claims-made policy is in force. If you cancel it, a later claim may not be covered. Keep coverage in force or buy a tail (an extended reporting period that gives extra 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.