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Construction Insurance Bulletin


By February 1, 2012No Comments

Managing design-build risk for any entity is something that requires careful consideration. There are many differences between design-bid-build projects and design-build projects. One of the most prominent differences is insurance coverage. In both types of projects, all parties share goals and have individual concerns. Since contractual relationships in these two types of projects vary, so do the methods of balancing risks.

Understanding Liability Concerns. If a problem arises when the owner has separate contracts with the designer and constructor, it is easier to distinguish whether the problem is a design flaw or a construction mistake. However, the law has a statute of limitations for design errors and building functionality. Both types of issues can result in messy and complicated lawsuits as time passes. For example, if a building experiences air quality problems two years after its construction, the cause of the problem could be shared by two or more parties involved in its design, construction and maintenance. When these issues turn into insurance claims, the parties involved often realize that their coverage is inadequate. Since insurance for these projects has changed in the past decade, the need for evaluation is crucial. Discuss the new changes, insurance requirements and helpful suggestions with an agent.

How to Solve Insurance Deficiencies. For those who are relying on General Liability coverage, it is essential to have modifications made to the policy. For example, companies that perform design-build work should add the design-build rider or the means and methods rider. Adding a rider closes the deficiency gap for liability coverage in a general policy. Another beneficial addition for design builders is Contractor’s Pollution Liability with a fungus inclusion. This affords protection from mold that results from damages. Another option instead of the combination of CPL and CGL riders is a Contractor’s Protective Professional and Indemnity policy, which is commonly called a CPPI. This type of product includes pollution and professional liability. Since the individual options are complicated, please discuss them with one of our agents. To get a clearer picture of what should be done to enjoy the strongest protection, consider the following liability tips:

  • Make sure the policy includes errors and omissions, which is layered as excess over the E&O coverage for architects.
  • Study the rules for the extended reporting period.
  • Ensure the policy period meets the project’s requirements.
  • Carefully examine the terms, conditions and exclusions of the policy.
  • Make sure the claim notification procedures are understood.
  • Instead of asking for only a certificate of insurance from contractors and sub-contractors, ask to see the policy itself.

Importance of Bonding. Many people in design building misunderstand bonding. Surety bonds are made between the surety and contractor to benefit the owner. They are classified as a credit instrument. While they are meant to benefit owners, brokers usually sell them. Owners should always ask for a total performance bond in any design-build project. If they are not requested, many types of unintended consequences can produce a messy situation. It is important to ensure that the design builder purchases surety products that include the contract’s entire cost. To learn all of the insurance issues for an individual project or company, discuss them with one of our agents.