Professional liability insurance

December 17, 2013

Marsh: Coverage rates continue to rise for U.S. construction firms

Source:, December 13, 2013

U.S. construction firms on average paid more for their insurance in the first half of 2013 as underwriters continue to seek price increases across the breadth of their contractor portfolios, according to a report published by Marsh.

Pricing for contractors general liability, project-specific general liability, umbrella and excess liability, workers’ compensation, and residential construction insurance was up between 3% and 7% on average during the first half of the year, according to Marsh’s Construction Market Update—First Half 2013. Construction firms with poor loss histories were more likely in general to have seen double-digit rate increases.

Pricing for non-residential construction, and contractors and architects and engineers professional liability insurance also was up on average during the first half of the year, but to a lesser degree.

“U.S. construction firms are grappling with a firming insurance market, especially when it comes to liability insurance where underwriters continue to tighten coverage terms and seek rate increases to make up for reduced investment income,” said Michael Anderson, leader of Marsh’s U.S. construction practice. “With a zero interest rate environment, there is no cushion against a poor underwriting decision.”

According to Marsh’s report, not all construction lines are experiencing rate increases. Premium rates for builders’ risk insurance generally remained flat during the first half of the year despite more demand for coverage. Similarly, contractors’ pollution liability rates remained generally flat to down 5%.

“While underwriters are attempting to gain rate increases, the market is awash in capital and new entrants are helping to maintain competition. The good news for well-managed construction firms is they can still generally find competitive pricing and terms,” Anderson said.


October 4, 2013

Act professional

Source:, September 30, 2013
By: Jay Sturhahn, Sherman & Howard LLC

A recurring risk for licensed professionals remains the threat of liability claims arising from their work. Given the nature of the professional’s practice, the claims are complex and costly, regardless of their merit. Therefore, professional liability insurance is a critical component of any professional’s practice.

Professional liability insurance continues to be a significant expense. Consequently, it has been our experience that the premium is often the biggest driver in policy selection. But selecting professional liability insurance based on cost, to the exclusion of an analysis of coverage, has its own negative economic consequences. Securing the best coverage, at the best price, requires examination of certain critical factors.

Insure the Right Risk.

Don’t assume insurers will voluntarily cover every claim arising from the professional’s performance of a compensated act for a client. Many professionals provide a blend of professional services, whereas liability policies are designed to cover risk arising from the traditional practice of the profession. For example, lawyers often give operational advice to their business clients and architects are asked to provide construction advice. Whether claims arising from the performance of these “non-traditional” acts are covered will depend on the policy in question, so review the policy before binding. Also, if you are a professional that regularly engages in “non-traditional” acts – e.g., a lawyer that prepares clients’ tax returns – confirm that undertaking is covered.…

August 9, 2013

Seven things about professional liability coverage—part 2

Source:, August 3, 2013
By: Andrew B. Downs, Bullivant Houser Bailey PC

This is the second in a series of posts on issues arising under professional liability policies. The aim of this series is to provide sufficient background information to allow the defense attorney to identify relevant issues frequently raised by professional liability policies and to formulate a plan for addressing them. This is not a treatise on how different jurisdictions view professional liability issues. For that, the reader should review the DRI’s 2012 publication Professional Liability Insurance: A Compendium of State Law. There are, of course, other issues of importance not discussed here.

Professional Liability Insurance is Commonly Written on a Claims Made and Reported Basis

Many, although not all, professional liability policies are issued on a claims made and reported basis, as opposed to being issued on an occurrence basis. This means that in order for there to be coverage, the claim against the insured must first be made during the policy period and it must also be reported to the insurer during or immediately after the policy period. This differs from commonly available occurrence-based general liability and automobile policies, which cover any injury or damage occurring during the policy period without regard to when the insured was negligent or when the claimant files suit. Some policies are written only on a claims made basis, with no requirement that the claim must also be reported during the policy period. While those policies permit reporting outside the policy period, they often require that notice be given within a specified period of time after policy expiration.…

July 17, 2013

Taking a Closer Look at Environmental Insurance

Source:, July 16, 2013
By: S. Ira Grossman

In a recent blog post I discussed how a comprehensive Phase I Environmental Site Assessment (ESA) and the Bona Fide Prospective Purchaser (BFPP) liability protection can help to protect you from acquisition environmental risk. Today I’ll look at Environmental Insurance, and how it can help cover the cost of remediation if an environmental hazard is found at your site.

Prior to the mid-1980s General Liability Insurance, the most common type of commercial risk insurance, made no mention of environmental damages. Then in the wake of the environmental movement and numerous regulations, insurers began to write environmental exclusions into the General Liability Policies, which led to the emergence of a new tool to manage environmental risk: environmental insurance.

Regulations Creating Liability

In 1972 the Clean Water Act was established. This law established the goals of eliminating releases of high amounts of toxic substances into water by 1985.

Two years earlier, Congress passed amendments that strengthened the scope of the 1967 Air Quality Act with new regulations such as national air quality standards and statutory deadlines for compliance.

In 1976, the Resource Conservation and Recovery Act (RCRA) was enacted. It is now most widely known for the regulations promulgated under RCRA that set standards for the treatment, storage and disposal of hazardous waste in the United States.…

July 3, 2013

Grasping professional liability insurance coverage

Source:, June 27, 2013
By: John Baker

An architect had occasion, for the first time, to call on his errors-and-omissions insurance policy for coverage.

No suit had been filed; the architect’s client had not even made a claim. But over a period of months, the architect had grown concerned that some problems he had seen in one of his recent projects could easily turn into a defects claim in which he would be a defendant.

The architect had maintained his insurance for many years – certainly he was covered. It would be a relief to have some help.

So the architect notified his insurer, told the adjuster all he knew about what might be wrong and how it might have come to be that way. To the architect’s surprise and dismay, the adjuster, misinterpreting some of the information he had just heard, concluded that the architect had known about the claim far earlier and, due to a delay in reporting, therefore fell outside the coverage of his professional liability policy.

If the adjuster were right, there would be neither coverage nor defense. Instead of getting a helping hand, the architect would face his worst nightmare.

This story is not unusual. Only the luckiest of professionals never faces the prospect of a claim that he or she has made an error for which he or she may be legally liable. This professional could have avoided some missteps and anxiety had he better understood his relationship with the professional liability insurer.

Insurance policies are contracts. An insurer protects an insured party because it is legally obligated to do so. An insurer will not protect an insured party from losses or expenses that are not included under the policy. Coverage is determined by broad provisions that are moderated by numerous exclusions.…

June 12, 2013

New Florida statute allows limitation of design professional liability

Source:, June 6, 2013
By: Jennifer W. Fletcher, Michael G. Kerman, Kent W. Collier , Jennifer S. Lowndes and Laura J. Stipanowich, Sutherland Asbill & Brennan LLP

Over the past fourteen years, third parties have been able to maintain a direct negligence cause of action against an individual design professional, such as an architect or engineer, arising out a construction project, despite the contractual arrangements being with the design professional’s employer.1 A new Florida statute will soon change this law.

In other words, if a general contractor contracted with an architectural firm to perform design work, and an architect employed by the architectural firm was negligent in the design, then the owner (the contractor’s client) could maintain its defect claims against the contractor, the architect (assuming no economic loss issues), and the individual architect personally. Or, in the case of a design/build firm, the action could be maintained individually against the architect employed by the design/build firm.…

June 4, 2013

Professional services exclusion precludes coverage for design defect claims

Source:, May 23, 2013
By: Wiley Rein LLP

Applying Nevada law, a federal district court held that an insurer has no duty to defend or indemnify claims alleging damage from design defects in houses constructed by the insureds due to the policy’s professional services exclusion. St. Paul Fire & Marine Ins. Co. v. Del Webb Communities, Inc., 2013 WL 1181904 (D. Nev. Mar. 19, 2013).

The insured construction companies were named as defendants in a class action lawsuit alleging damages as a result of structural seismic design defects in houses. The insureds tendered the lawsuit for defense and indemnity coverage under an excess policy issued by the insurer. The excess policy contained a professional services exclusion precluding coverage for damage “that results from the performance of or failure to perform architect, engineer, or surveyor professional services” including “the preparation or approval of any drawing and specification, map, opinion, report, or survey, or any change order, field order, or shop drawing; and any architectural, engineering, inspection, or supervisory activity.” The insurer accepted a defense subject to a reservation of rights, and filed a declaratory judgment action seeking a determination that no defense or indemnity obligation existed under the excess policy pursuant to the exclusion.

The court held that coverage was precluded by the plain terms of the professional services exclusion in the excess policy. According to the court, the only damages sought in the class action lawsuit were “damages relating to curing the design defect” that fell directly within the scope of the exclusion. In so holding, the court rejected the insureds’ contention that additional discovery was warranted to determine if a concurrent cause for the damages existed that would defeat application of the exclusion. The court noted that the insureds “cannot show that there was a concurrent cause which would defeat the Exclusion because the only allegation in the [underlying action] is that homes were built using the allegedly defective [designs] and are hazardous because they do not meet seismic codes.” As such, the court rejected the insureds’ request for further discovery and held that no coverage obligations existed for the class action lawsuit under the excess policy.

The opinion is available here.…

November 12, 2012

Construction insurance fundamentals

Source:, November 2, 2012
By: Scott W. Davis, Bricker & Eckler LLP

“The Heiles argue that the policy exclusions relied on by State Auto do not apply here. Indeed, the policy is riddled with definitions, exclusions, exceptions, exceptions to the exclusions and exclusions to the exceptions.” Heile v. State Auto. Mut. Ins. Co. (1999), 136 Ohio App.3d 351, 353.

In interpreting an insurance policy, the court in the case above came to a simple conclusion that we all know: insurance policies are confusing! While the policies themselves may be replete with exceptions, exclusions and exceptions to the exclusions, the fundamental concept behind insurance does not need to be so confusing. Insurance is simply a tool to manage and transfer risk and it is an important part of the risk management strategy for any construction project.

Defining Insurance

An Internet search will reveal many different definitions of the term “insurance.” Essentially, insurance is a contract by which one party (the insurer), in exchange for consideration (i.e., money or a premium) promises to make payments upon the destruction or injury of something in which the other party (the insured) has an interest. See Couch on Insurance (3rd ed. 2009), Section 1:6. In construction contracts, the owner, contractor and design professional each seek protection from loss or harm related to the construction project through insurance policies. Each party is responsible for providing different types of insurance that offer protection during construction and after construction is complete.

Types of Insurance Coverage

Liability insurance and property insurance are the two common types of insurance coverages available and carried by most owners, contractors and design professionals. Property insurance protects the owner or user of physical property and equipment from losses due to covered perils such as fire or explosion. Liability insurance, on the other hand, protects the insured from claims arising from damage or hazards caused by the insured. It is common on most construction projects for the owner to provide property insurance while the contractor and design professional will provide liability insurance. The construction contract should define the types of coverage required of each party, the limits of coverage and any project-specific requirements applicable to the insurance that each party is to provide. For this reason, owners should consult with their legal counsel and insurance carriers to determine the appropriate types of coverages that should be carried on a project as well as the appropriate policy limits for each type of insurance.…

July 13, 2012

Professional Liability Insurance for Contractors

Source: Construction Business Owner, July 1, 2012
By: Steven D. Davis & Ray Bustamante

Gain a better understanding of this complex and often misunderstood type of construction insurance.

The exposures that contractors face have become more complicated as a result of changes in project delivery systems over the past 20 years. This has forced construction executives to examine professional liability coverage—a complex and often misunderstood type of coverage.

In the past, an unendorsed Commercial General Liability (CGL) policy gave contractors a good option for insuring their general or operational liability risks. But the dynamics of coverage changed dramatically once the policy included the professional services exclusion, leaving contractors to sort through exposures arising out of their operations. Over time, an added endorsement, ISO CGL 2279, closed this coverage gap and restored coverage for bodily injury or property damage (BI/PD) in connection with the design of their means and methods.

The CGL policy covers physical activities that result in BI/PD, but the source of professional liability claims often come from issues relating to faulty design, cost overruns or a delay in completing the project due to professional negligence.

In construction litigation, professional negligence is usually defined as failure to perform duties according to the rules or standard of care or practice that would have been expected of another professional performing a similar task in the same region or location.…

June 28, 2012

Curtain-wall Falls; Kills Pedestrian

A construction manager and architect, retained by a developer through a “single point of responsibility” contract, engineered, designed and constructed a 70-story office tower. Architectural drawings specified a curtain-wall system. Two years after completion, one  fell from the face of the office tower, killing a pedestrian. The victim’s estate sued all parties involved in the tower construction. An engineering expert for the estate testified that the anchoring system was inadequate to support the weight of each curtain-wall panel. The architect had inadequate limits of professional liability insurance to cover this claim. The construction manager faced significant design errors and omissions as well as economic damages from the developer due to vicarious liability imposed by the architect.…