“Some argue that Protective coverage delays fair and prompt settlement and adds to finger pointing. That’s a flawed argument. In fact, the opposite is true.”
To better manage the potentially devastating liability exposures, Protective Professional Indemnity (Protective) coverage forms have become increasingly popular. They are better suited to resolve design issues and keep projects on schedule and on budget throughout the construction process, and they commonly provide supplemental coverage for professional errors and omissions (E&O) claims by the insured against its own design professionals. In addition, the Protective policy sits atop all of the insured’s design professionals’ practice E&O policies as a form of excess coverage in the event the design professional’s E&O policy limit has been exhausted or is not sufficient to pay the claim.
But not all Protective programs are created equal, and it is important to understand the carrier’s philosophies concerning management of claims when choosing a policy. While Protective coverage forms have become fairly consistent over the years, it’s the philosophies and procedural differences among the approximately 10 providers offering this coverage that make the difference and add value.
On the plus side, Protective insurance carriers typically work with insureds to resolve claims quickly and avoid protracted litigation. As such, claims can sometimes be settled in months, not years; this, of course, can keep projects moving along without major delays and the costly legal fees and intervention that come with them.
Most Protective claims are made during the construction phase after the discovery of design errors by the contactor. Because the issues involved are usually technical in nature, engaging the services of an experienced risk and/or forensic engineering expert to investigate and determine the cause and extent of the problems and potential exposures is a prudent first step in the resolution process.
Once the full exposure is determined, developing a plan to keep the project on schedule and budget is critical. A Protective carrier that has a proactive claims approach will take steps—including, potentially, paying a portion of the limits of liability—to fix the problem without further delay. This contrasts with a Protective carrier that waits until the underlying liability for design errors is determined—a process that can take months or years and does not contribute to keeping the project on schedule or within budget.
With litigation of damages and proactive claims settlement addressed in the policy form, a Protective carrier can help validate and substantiate a claim for design liability and bring a matter to a quick and positive resolution. Experience shows that such claims are less likely to be litigated and are settled many years in advance of litigation that’s common with design liability; at the same time, the project stays on schedule and on budget.
Some argue that Protective coverage delays fair and prompt settlement and adds to finger pointing. That’s a flawed argument. In fact, the opposite is true. A Protective carrier is best able to work to resolve issues quickly and do away with finger pointing by focusing on key issues, while keeping projects moving and avoiding more costly claims down the road. The goal is to substantiate what is covered and negotiate in good faith without self-interest or a desire to pad claims.
Protective insurance delivers benefits to contractors/owners and design professionals by helping them salvage and resume their relationship after errors or omissions are uncovered and claims are settled. The key is asking for help. Many problems can be contained or extinguished altogether by an early and proactive response. Such coverages or services can make all the difference between speedy recovery and lost profits and reputations.
Raymond F.H. Bustamante is executive vice president of Berkley Construction Professional, a Berkley Company. W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States. Bustamante can be reached at firstname.lastname@example.org or (973) 600-0926.