We are often asked about the need for professional liability coverage when we’re conducting our business assessment with general contractors and design-build firms. Our answer usually surprises even the most sophisticated firms. Though design services may or may not be specifically excluded in General Liability (GL) policies, the amount of coverage and support offered is very limited at best. These limitations create a coverage gap for firms that are involved in project design because of the specific damages they are designed to cover; bodily injury or property damage.
Contractors involved in design should exercise extra attention with their insurance and risk management programs because most liability claims against design professional services involve passive economic damages. These damages can include delays in completion of projects, issues with the structure not adequately meeting performance needs, or additional costs associated with finding more suitable space. For schools, multi-family projects, large office or industrial complexes these types of claims can easily reach into six figures in passive damages: the exact type of damages that aren’t covered under a GL policy. If a project is impacted by a design issue but no one is injured or no property is damaged, a GL policy likely won’t provide much relief.
Unfortunately that’s not the only challenge we encounter when working with design-build firms. Another problem we frequently discuss occurs because the policies that exist to cover the above mentioned types of passive losses are written on a claims-made form. A claims-made form offers coverage only if a claim is made while the policy is active. That prompts the question: what happens if the design firm or entity that was created for this project no longer exists? Many times the answer is the contractor that holds the master contract is left on the hook for damages without coverage on their GL.
The general liability and workers compensation coverage get most of the attention from general contractors and for good reason. However, if a general contractor is involved in any of the design work, whether directly or by subbing out design services, it’s important to address the gap in coverage through a professional liability policy.
At Baer we specialize in working with both design firms and general contractors. Due to this specialization we have the knowledge and tools to evaluate a company holistically when it is involved in both the contracting and the design side of a project. Through our assessment process we work with firms to construct an insurance program that provides the multiple levels of protection that a diverse company needs.