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Have you ever thought what would happen if you were building a bridge across a river one mile wide and your calculations were “almost” correct but actually off by a mere one degree? You would miss your mark by over 90 feet, which is the distance from Home Plate to First Base at Yankee Stadium.
OOPS!
Insurance coverages help transfer these risks from your company’s balance sheet to the Insurance Carrier.
For instance:
- If your employee is injured on the job, you have Workers’ Compensation coverage to protect you.
- If a third party suffers bodily or property damage from your actions, you have General Liability coverage to protect you.
- If you have a car accident, you have automobile insurance to not only pay for the damage to the vehicles but also to the damage on someone else’s property.
However, what happens if you are 90 feet off your mark as you build a bridge? The answer is Professional Liability Insurance.
What is Professional Liability Insurance?
Professional Liability Insurance—sometimes referred to as Errors and Omissions Coverage—is an insurance policy that will pay for the Design and Engineering errors that are discovered during a project. It starts with a Design Agreement. This lays out the responsibilities of each party with a Limitation of Liability to limit the designer’s exposure to claims and specific insurance requirements.
The policy is designed to cover claims that affect the cost of construction and schedule. Issues such as Incorrect Building Codes, Schedule Busts, Quantity Busts, or just plain goofs are all issues that could trigger the policy. It is important to note that Contractor claims often look to include the Designer’s Insurance as the first point of recovery for the claim.
Professional Coverage is broken into three separate parts: Protective, Professional, and Mitigation. Each of these is a separate coverage with its own insuring agreements.
Protective Indemnity
A first-party coverage (i.e. the Insured) that is Excess of the Design Firm’s Insurance. This provides coverage on a Difference In Conditions basis that can expand the coverage provided and can become the primary if there is no underlying policy.
An Owner or General Contractor seeking indemnity from the Design professional can trigger the Designer’s policy against the design professionals. If the claim is greater than the limits that the design firm(s) has then this coverage would be in excess.
Professional Liability
Provides third party coverage for a claim that is made AGAINST the insured for seeking damages or correction of a Professional Service.
The Owner has to provide a written demand for claims against the General Contractor to trigger the coverage.
Mitigation Costs
Provides the General Contractor—with the permission of the Insurance Carrier—the ability to trigger the policy when they identify that there is an issue caused by a design error. The benefit is that by fixing the issue, the insured may mitigate a costly and protracted Professional Liability Claim AGAINST the General Contractor.
The General Contractor triggers the coverage to avoid getting a claim from the Owner to fix the problem. This is often a quicker and less expensive fix, rather than a claim battle with the Owner.
When purchasing Professional Liability, it is important to remember that the defense costs for the claims are not unlimited. They are part of the Insured Limit and will reduce the dollars available to fix the claim. Professional Policies can be set up as project-specific or annual “practice policies” that cover all the risks for the Contractor for that policy year. Overall, the claims process can be difficult. It may be necessary to hire a Technical Consultant to assist with the validation and payment of the claim.
With the complexity of construction projects increasing, more and more Contractors are realizing that they can no longer go without this vital coverage. If you have any questions about Professional Liability and the type of coverage you have in place for your upcoming projects, contact TSIB today!
