INSURANCE AND RISK MANAGEMENT


Design-Build Insurance Today – What a Contractor Must Know


By Bob Mahan Many years ago when I left the Navy as a nuclear engineer in


charge of various aspects of submarine power systems, I joined a worldwide engineering firm. Their projects used the design-build delivery method with all critical design functions performed by the project team at a single location. The firm I joined employed a very large staff of in-house law-


yers and insurance experts working side-by-side with a prestigious law firm whose sole role was to protect the firm’s vast assets. They relied on their high deductible general liability coverage to protect them against bodily injury and property damage. They also car- ried a form of E&O insurance, the details of which were not made available to the project design team. They were not terribly worried about liability arising out of either design or construction defec- tive work, as they capped their liability through iron clad contract provisions. Losses above that amount were the responsibility of the utility owner. Fast forward to today. Many contractors don’t have the mar-


ket clout of my mentor. Until recently, most of the work done was design-bid-build, where professional liability claims were not an issue. We have entered an era where design-build is common – yet many players don’t understand how to structure their insurance programs to protect their assets. It takes a composite of several


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complex insurance products to provide reasonable protection. This article looks at few of them, particularly general li- ability / excess liability and professional liability coverage, and what they can offer a design-build contractor.


General Liability(GL) / Excess Liability Long recognized as the key product protecting your life blood,


these policies are far from perfect. General liability (GL) coverage is limited to damage arising out of bodily injury (BI) or property damage. (PD). It won’t provide any protection for design defects that require corrective work either for redesign or rip-out and re- pair of resultant defective work. There are several GL primary cov- erage forms that are critical to an effective design build insurance program, and it is important for contractors to understand their ramifications. Three of those coverage forms include the following:


 ISO CG 22 43: Total professional services exclusion that can lead to coverage denials for any field supervision, inspection and field engineering services. The AGCC subcontract bans its use.


 ISO CG 22 79: The 22 79 contains similar 22 43 exclusionary language, but has an exception that allows coverage for con- struction means and methods. Sadly, there are lots of opin- ions, but little case law on how the “means and methods” term applies. Field as-builts are probably covered. But how about safety inspections and procedures, startup, testing etc.?


 ISO CG 22 80: This is the ideal form as it does not exclude operations in connection with construction work performed by you or on your behalf. This is not easy to obtain unless your GL premium is over $100K – not likely except for the larger GCs.


Option 2 above (ISO CG 22 79) is acceptable for a GL policy;


however careful attention must also be given to the excess coverage provisions. Policy language limiting cover for quasi-professional acts is commonplace. A competent broker should be able to struc- ture your excess cover to provide at least “means and methods” protection. ENSURE he does so.


Professional Liability Policies are designed to cover bodily injury, property damage


and economic loss arising out of professional negligence. A design- build contractor requires professional coverage for the following reasons.  GCs can’t rely on the coverage provided by the design profes- sionals.


 Sophisticated owners require it.  The GL cover is inadequate to protect your assets.


There are myriad professional liability policies available from


highly rated carriers. Unlike the GL policy, they all have their own form of coverage with a number of complex options that require an experienced broker to evaluate. Issues of particular importance include:


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