- THE MAGAZINE
During his presentation to building, federal, highway and municipal contractors, Slivka highlighted the evolving construction insurance marketplace and the massive financial liabilities currently confronting property owners, firms and contractors that are either under or improperly insured when it comes to professional liability. “Stories constantly emerge about professionals, who lack the proper forms of insurance to cover losses when issues or incidents arise,” explained Slivka. “As a result, these horror stories have caused many construction firms to protect themselves with the proper professional liability insurance.”
According to Slivka although there is some element of coverage for professional liability under Commercial General Liability (CGL) policies, they still fall short of adequately addressing professional liability associated with various professional services. This includes activities performed by many construction firms related to construction management, pre-construction consulting services and design-build services.
“This is why the purchase of contractor’s professional liability (CPrL) insurance is a very sound investment for construction firms,” adds Slivka. “Generally speaking, economic damages such as acceleration costs, delay damages, costs for remedial design, reconstruction and the like arising from professional services performed by or on behalf of the insured would not provide loss protection under CGL policies, while they would under the CPrL. As a result, most contractors should strongly consider some form of CPrL insurance that provides coverage against third party suits alleging negligence in the performance of professional services.”
In recent years, asset protection and the demands of owners and general contractors (GCs) have been among the leading drivers of CPrL insurance purchases. This is due to the increased awareness of exposures and the potential for professional liability among owners and GCs as well as the desire of contractors to finance professional liability loss through CPrL coverages. Other drivers include recent construction industry trends which are causing contractors to:
- Increasingly collaborate with owners and design teams
- Fast track efforts to meet the immediate needs of property owners, municipalities and other state and federal bodies
- Develop new service areas through greater involvement in Leadership in Energy and Environmental Design (LEEDS), Building Information Modeling (BIM) and private Public Partnerships (P3) programs
Slivka suggests that contractors who purchase CPrL coverage will be better enabled to bid projects that pose potential professional liability risks, while offering greater protection to their organizations. Currently, about 15 domestic and foreign insurers offer various forms of CPrL coverage. However, nearly all offer different risk appetites and coverage levels.
“It’s becoming increasingly difficult to navigate the professional liability marketplace,” says Slivka. “Although the market is broadening with the expansion of new coverages, new carriers and the softening of rates, all carriers offer varying terms, definition, exclusions and conditions in their programs. You have to understand what protection you need and what protection you are buying.”
To properly overcome the many insurance issues and pitfalls surrounding the CPrL marketplace as well as to help them make logical, economic decisions, Slivka offered the following tips to contractors during his AGC presentation:
- Make sure the contractual relationship between the named and insured are clearly understood and identified prior to the purchase of the coverage
- Consider combined CPrL and Contractors Pollution Liability (CPL) programs to cover both professional and environmental liability exposures. This will enable contractors to purchase the benefits of both coverages, while only dealing with one premium and retention
- Don’t limit the effectiveness of CPrL coverage through some form of pollution exclusion. Given the variety of services now offered by construction firms and contractors, the potential for pollution risks has significantly risen
- If you are holding contracts with design professionals, consider “protective” coverage. Protective coverage provides first party indemnity to those contractors that incur cost, excess of the design professional’s professional liability insurance, for negligent acts, errors and omissions on the part of the design professional. These costs can be substantial.