By Anthony Kammas, Partner, Skyline Risk Management
Things are changing all the time. In the past when a traditional construction project was being formulated, three important and well-defined steps took place: design, bid and build. Under this method, an engineer or architect provided the design services, a project management company took care of bidding out the project, and the construction contractor built the project. Each party had their own responsibilities and the risks that would accompany them.
But today, those roles and the responsibilities are changing. Because newer projects are more complex and design responsibilities are becoming more fragmented, the parties to a construction contract do not have the defined line between them that used to exist.
As these lines of responsibility between design firms and contractors become blurred, many contractors assume unusual risks that their normal contractor's coverage may not address. Contractors are now assuming risks that need to be mitigated with Professional Liability Insurance.
Construction Management Risks
Contractors today are likely to perform construction management services as an agent of the owner or hold separate contracts with subcontractors. In either situation, the contractor now takes on the responsibility for supervising the subs, scheduling and cost estimating. These types of activities create a specialized standard of care and a corresponding professional liability risk. The contractor no longer acts just as the builder of the project but is now responsible for design recommendations and project management. In the past, this was a three-part process done by three different firms.
Which Coverage for Which Risk?
We know that the general liability policy will provide coverage for losses caused by ordinary construction means and methods as long as there is resulting bodily injury or property damage arising from the occurrence. However, the professional liability policy will provide coverage for damages that result from rendering or failure to render professional services.
Circumstances such as project delays, cost overruns or having to reinforce a faulty structure wouldn't be covered under the commercial general liability but would be covered under a professional liability policy if it was caused by professional negligence.
The Contractor's Solution
Many insurance companies that specialize in the construction industry now make available the Contractor's Professional Liability Policy. This policy is a good solution for contractors that are involved with project design and construction management. Although policies differ by the carrier, most will provide the following coverage:
- Broad professional services definition
- Pollution Liability
- Blanket additional insured coverage for clients of the "Named Insured" for pollution claims
- Coverage for joint ventures
- Prior firm coverage
- Supplemental coverage for insured expense reimbursement
- Coverage for innocent insureds
- Automatic extended reporting period
- Optional three-year extended reporting period
- Claims-made coverage with circumstance reporting provision
- 25,000 claims mediation credit
- No lead or asbestos exclusion
- Excess limits on specific projects
- Coverage can be primary or excess
- Subsidiary coverage
- Worldwide coverage
Once a contracting firm gets involved with the design, bid or management of a project, the gate to professional liability risks are flung wide open and a standard Commercial General Liability policy falls short on many levels. If you perform any of these design or project management functions you should inquire as to whether a professional liability policy should be part of your overall insurance plan.
Anthony Kammas is a partner at Skyline Risk Management, a New York-based insurance company that specializes in construction and real estate insurance.
Anthony Kammas, Partner
Skyline Risk Management
30-50 Whitestone Expressway, Suite 402
Flushing, New York 11354
Direct Phone Line: +1.347.577.9887