● All stakeholders should be named insureds on the policy.

● The value of a well-written builders risk policy should not be underestimated.  It is always better to have a loss paid under a property policy than a liability policy, which is usually triggered by a lawsuit.

Contractors Insurance  

Insuring a design-build project from a general liability, automobile and workers’ compensation standpoint is not much different from a design-bid-build project.  The challenge is the professional liability exposure that the contractor assumed when taking on responsibility for design. Certainly the contractor should ask the design professional to indemnify them from design negligence.

Most, if not all, design professionals will be agreeable to this; however, there are some issues a contractor should be aware of:

● A design professional liability policy provides coverage only if the design professional is negligent. The law does not require the design professional to be perfect, and the perfect set of plans has yet to be drafted. In other words, there can be errors in the plans that don't fall below the standard of care. In situations like this, the design professional is not negligent, and the contractor will have to bear the risk.

● A design professional liability policy is written on a claims made and reported basis (as opposed to most general liability policies, which are written on an occurrence basis). If the design professional drops their coverage before a claim is made, there will be no coverage, even if they had the insurance when they did the design.

● A design professional liability policy covers all of the work the design professional has done. It is conceivable that when a claim is made against them, their limits could have been exhausted by other claims.

● Design professionals historically have not carried significant limits of coverage. One or two million dollars in total limits is common, even for firms designing significant structures. As mentioned, above this limit is for all the design firm’s work and also includes defense costs within the limit.

For these reasons, contractors should strongly consider purchasing contractors professional liability insurance, which not only covers the contractor for its legal liability arising out of its own professional services but also protects the contractor from its vicarious liability arising out of the negligence of its subconsultants. In addition to professional liability, a CPL policy can also include contractors pollution coverage.  

Dispute Resolution  

Identifying potential problems and resolving disputes in a timely matter is critical to the success of a project. Stakeholders should be encouraged to discuss concerns before they become claims. Ideally these issues are worked out amongst team members. If, however, this is unsuccessful, the next step should be mediation. If mediation is unsuccessful, you have to consider arbitration or litigation. But, if it is at all possible, the dispute should be settled by the parties to the dispute.

Jeff Cavignac is president and principal of Cavignac & Associates, a leading commercial insurance brokerage firm in San Diego. Website: www.cavignac.com