Over the past three decades, the delivery system for construction projects has undergone some fundamental changes.
Many of these changes sought to relieve the owner from the costs and challenges associated with attempting to assemble two independent, and somewhat adversarial (designer and contractor), parties to cooperate in delivering a quality project.
With these changes in methods, whether design build or construction management, exposures to contractors have also undergone fundamental change.
Under the traditional method of construction contracts, most of the professional liability will rest with the design professional, which historically has been a separate entity. However, contractors that perform work as design-builders assume not only the responsibility for design, but also the corresponding liability exposures.
It is clear that when contractors enter into design-build and construction management contracts, they take on certain responsibilities that require professional architectural and engineering expertise. Since coverage for professional liability is excluded under most contractors' general liability insurance policies, contractors performing these services require professional liability insurance to protect their balance sheets.
Contractors who question their need for professional coverage might wish to evaluate the checklist of exposures as prepared by the International Risk Management Institute:
a) Does your firm enter into explicit design-build or construction management contracts?
b) Does your firm perform services for a fee that involve no "hands on" construction work?
c) Could failure to exercise the appropriate degree of skill and care cause harm to others?
d) Does your firm employee licensed professionals-primarily architects or engineers-or does your firm contract directly with these professionals for services?
If the answer to any of these questions is "yes," the contractor should look further into procuring professional liability insurance.
Recognizing professional exposures requires understanding the scope of services provided on a project, how the contractor is defined by the project parties and the project agreement and scope. The following chart summarizes the responsibilities:
| Project Phase | Professional Liability | Associated Factors |
| Design | High | Liability exists even if all design is subcontracted and the design firm purchases professional liability insurance. Subcontracting even small portions of a project's design, such as mechanical, electrical and plumbing results in vicarious liability for the general contractor (GC)/construction manager (CM). Professional liability exists when providing constructability reviews, value engineering and when making field changes to designs. |
| Construction Management | High | Advertising or accepting responsibilities as a specialist in the management of the construction process puts a firm into a consulting role. This increases professional liability. Liability is lower if projects are not complex. |
|
Pre-construction |
Medium | Proposing a change that results in construction defects, additional costs and/or failure to discover design defects or constructability concerns exposes you to liabilities more closely associated with a design professional. |
| Sub-contractors | Medium | Hiring design professionals increases liability as does having responsibility for processing and approving subcontractor payments. Interference with a subcontractor's work can create liabilities, as can the hiring of "specialty contractors" (e.g., environmental contractors) to address unanticipated issues affecting the project schedule. |
| Budget | Medium | Authorizing change orders that increase the project budget increases liability. Liability decreases when change orders are justifiable. |
| Schedule | Medium | As a CM, project scheduling is viewed as a professional service because the company is being retained and held responsible as an expert in the construction process. Liability increases if project completion date is critical (i.e., schools). |
| Field Work | Low | Field changes increase liability. |
General Liability Exclusions
General liability (GL) and professional liability policies typically have specific exclusions relating to professional acts or omissions. While contractors with incidental or limited exposure may be able to arrange adequate coverage by modifying these policies, contractors who execute design-build contracts will need separate professional liability coverage.
The Insurance Services Office (ISO) Commercial General Liability policy and the typical policies underwritten by Umbrella/Excess underwriters have specific restrictions related to professional liability coverages. The 2007 Insurance Services Office (ISO) GL coverage (CG 00-01-12-07) form excludes professional liability coverage under the Exclusions-Contractual Liability through the definition
