Contractor’s Professional Liability Coverage: Construction Law
This information is being presented from the Contractor’s vantage point. Hopefully, this will also provide valuable information for any design professional seeking to gain greater knowledge and information regarding the risk management concerns that apply to a Design/Build project led by a construction firm. Knowing these concerns and how contractors can minimize their unusual liability exposures should be helpful for any design firm entering into an agreement on a design/build project. In addition, contractors and all others who are involved should be knowledgeable about this specific delivery system as it is unique and different from the design/bid/build delivery system.
Please note…the Professional Liability exposure is ever present for the Design/Builder even though the professional services are subbed to qualified and insured design professionals. The Contractor’s Professional Liability policy would respond in the event the Design/Builder had an in-house design staff or if they subcontract out all the professional services/exposures to design professionals.
All Design/Builders will most likely be insured with Commercial General Liability and Excess/Umbrella type policies…and the following exclusions are always a part of these coverages:
- A damage to work exclusion
- A damage to the product exclusion
- An impaired property exclusion
- Professional Liability exclusion
- Absolute pollution exclusion
In addition…these policies only respond to bodily injury, property damage and personal injury claims as defined in these policies for claims… which result from theDesign/Builder’s negligence.
Why do You Need Professional Liability Coverage?
The reason this coverage is needed is that the contract with the owner will normally require that the contractor be their single point of responsibility. As a result…the contract documents will require the Design/Builder to assume not only the responsibility for the construction means, methods, procedures, sequences, safety, etc. but the responsibility for the design exposures. Obviously…specific contract documents will determine exactly what the Design/Builder’s responsibilities are in this area.
Another advantage to the Contractor’s Professional Liability policy is that it responds to claims arising from their negligent acts, errors or omissions, which is not the case with the other coverages mentioned above. The Contractor’s Professional Liability coverage addresses some of the obvious gaps which are a part of the Contractor’s Commercial General and Excess/Umbrella Liability policies. The Contractor’s Professional Liability policy also insures the subjective “standard of care” that professionals are required to provide versus the objective standards that contractors are usually required to provide as a contractor.
To recap…when dealing in the Design/Build delivery system the professional exposures are created in the following ways:
- Single point of delivery,
- The language contained in the owner’s contract with the contractor,
- Contractor’s direct liability for the in-house professional services rendered,
- Contractor’s vicarious responsibility for services subcontracted to design professionals:
With this coverage…the contractor’s surety (bonding) company should also be much happier! It removes them even further from the possibility of an owner or other third party claimant. Don’t forget…“bonding” does not provide protection for these exposures but this specific coverage does insulate the surety more from being sued and having to incur tremendous defense costs before they are dismissed from a suit.
In addition, any costs/expenses incurred by surety arising out of the bonding process which relate to the design/build process will fall back on the bonded contractor… As a result of the property damage and economic type loss exclusions… it is estimated that 60-75% of all Property Damage type claims are not covered!
Please remember…this is a claims-made policy and there is no standard policy form. As a result, it is suggested that a thorough review be conducted.