Owners of construction projects face many risk management challenges—whether building new, adding on to existing facilities, or performing rehabilitations. For a project owner, managing construction risk is significantly different from managing the risks inherent in their daily operations. One difference of particular concern is professional liability risk associated with execution of design and other professional services.
Construction-related professional liability insurance is rapidly changing and has often been underinsured relative to the exposures created when commencing a new project. Even on a modestly sized project, an owner can have significant exposure to cost overruns, time delays, and re-work from faulty design, negligent construction management, or errors from other disciplines performing professional services on the project. Losses suffered by project owners can prove to be very costly, confusing to litigate, and difficult to calculate.
How to Manage Professional Liability Exposures
Fortunately, multiple options exist to manage professional liability exposures for construction project owners. Transferring the risk to an owner’s protective policy is one solution that should be considered well in advance of contract development and budgeting.
The owner’s protective policy is often purchased for projects greater than $50M in hard construction costs. It can be put in place for a variety of projects, including commercial, institutional, schools and colleges, hospitals, airport expansions or renovations, rail, roads/highway transportation or other civil projects, correctional facilities, casinos, hotels and resorts, residential/commercial-grade construction, water, waste water and sewage, and municipal facilities.
With the current state of economic uncertainty and expense management protocols, the owner’s protective policy has quickly become the coverage of choice and cost-effective alternative for managing owners’ professional liability exposures on construction projects.
Guest blogger Michael Brodzinski is a key resource and expert for professional liability issues for contractors, owners, and design firms and works with Willis’ local offices, clients, and prospects primarily along the Eastern United States. Based in Pittsburgh, he he holds the Construction Risk and Insurance Specialist Designation and is a licensed property and casualty insurance broker.