A contractor completes a $75,000 home addition but discovers they made an error in the foundation layout. The homeowner demands the contractor rebuild the foundation at the contractor's expense. If the contractor's insurance covers this claim, which type of insurance would respond?
Correct Answer
C) Professional liability insurance
Professional liability (errors and omissions) insurance covers mistakes in professional services, including design and construction errors.
Why This Is the Correct Answer
Professional liability insurance (also called Errors & Omissions or E&O insurance) covers claims arising from professional mistakes, negligent acts, errors, or omissions in the performance of professional services — including construction design and execution errors like an incorrect foundation layout. This is a claim based on the contractor's professional error, not a sudden accident.
Why the Other Options Are Wrong
Option A: Workers compensation insurance
Workers' compensation insurance covers employee injuries and occupational illnesses occurring during employment. It has nothing to do with construction defects or errors made by the contractor.
Option B: Commercial auto insurance
Commercial auto insurance covers vehicles used for business purposes — accidents, damage, and liability involving company vehicles. It does not cover construction errors or defects.
Option D: General liability insurance
General liability insurance covers bodily injury and property damage caused by sudden accidents (e.g., a wall falls and injures someone, or a contractor breaks a homeowner's window). It typically excludes claims for the contractor's own faulty workmanship or design errors — that is the domain of professional liability.
Memory Technique
Professional error → Professional liability. 'If you made a mistake in your craft/profession, professional liability (E&O) responds.' GL = accidents that happen TO others; Professional Liability = mistakes YOU make in performing your work.
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