Be sure your insurance program offers protection for additional risks created from design-build jobs.
The design-build approach continues to grow in both public and private sectors. A recent study by the Federal Highway Administration (FHWA) found that the project duration for design-build projects was 14 percent less than the design-bid-build approach, in which the owner contracts with separate entities for design and construction. In design-build projects, a single party-the design-build team-works under a single contract to provide the design and construction of a job. This method can significantly reduce the project's delivery schedule.
Design-build jobs, however, create additional risk exposure to contractors. Contractors have more protection with the traditional approach because of established construction contract law doctrines, such as the Spearin doctrine. This doctrine holds that the contractor is not liable to the owner for any loss resulting from defective drawings or specifications if the contractor can demonstrate he followed the plans and specifications provided by the owner.
As more owners use the design-build delivery system, contractors must be sure their insurance program offers protection for this additional responsibility.
The Design Professional's Liability Policy
Many contractors subcontract the design to a design professional. If this is your approach, remember these key points:
The designer's professional liability policy only protects the designer. It will not typically provide a contractor with additional insured coverage or contractual liability coverage. Contractors need an insurance policy that will provide protection for any responsibility they assume for the design contract.
The design professional's policy limit is shared over all of his or her other jobs, and a claim from another job could exhaust his or her limit, resulting in inadequate claims coverage.
General Liability Policy
A contractor's general liability policy will typically have an exclusion for professional liability. The most common exclusion is for liability from engineering, architectural or surveying services provided by you or on your behalf. This would likely exclude a contractor's responsibility for the design contract (whether it is performed in-house or subcontracted to a design professional).
A limited professional liability exclusion in a general liability policy limits the type of damages covered to bodily injury and property damage. But design errors often do not result in actual physical injury or damage. For example, if a design-build contractor miscalculates a building's cooling needs, the property has not had any true physical damage, but it does reduce the building's value to the owner (the market value to sell or rent it) due to the inadequate cooling system. If correcting the problem is not feasible, the contractor will be asked to compensate the owner for this diminution of value. However, the general liability policy does not cover these types of diminution of value claims or other purely economic losses. To obtain coverage for this type of exposure, a professional liability policy is needed.
Umbrella Liability Policy
Similar to the general liability policy, a contractor's umbrella liability policy-the policy designed to provide protection against catastrophic losses-will typically have a professional liability exclusion. The most common exclusion is for liability from engineering, architectural or surveying services provided by you or on your behalf. This would likely exclude a contractor's responsibility for the design contract (whether it is performed in-house or subcontracted to a design professional).
Contractor's Professional Liability Policy
While professional liability policies provide a broader scope of covered damages, these policies are limited to a specific scope of activitiesThe contractor's professional liability (CPrL) policy will typically have a manuscript definition of covered professional services. This definition is critical to understand the coverage provided. If the definition focuses only on your contracting activities, it may not extend coverage for any work performed for the design contract (whether it is performed in-house or subcontracted to a design professional). The definition of "covered professional services" in your policy should be carefully reviewed to ensure your design-build exposure is properly protected. In addition, since your umbrella policy limits will not
