What is design liability?

When a design professional provides design services, the law states that they must act in accordance with the professional standard of care. That means that he or she must act just as any other design professional would facing the same or similar facts and circumstances. This requirement - to refrain from negligence - holds true whether the design professional is working on his or her own or for a contractor.

Why should a contractor care about a design professional's design liability?

Today many architects and engineers work directly for contractors. And if a design professional works for a contractor, the contractor is liable for the performance of that architect or engineer's services. The contractor can be held legally responsible if the design professional is found to be negligent in any way.

Contractors can also be held liable for A/E negligence if they hire the design firm as a subcontractor or combine with the A/E firm in a joint venture. That's why when a contractor enters into a design-build agreement with an owner, the contractor usually is required, either directly or through its designer, to carry professional liability insurance to cover this exposure. If AGC Document No. 410, for instance, is used in the agreement, the contractor is required to obtain professional liability insurance.

It's also possible that the contractor may have design responsibility and liability even under the traditional design-bid-build project delivery method. However, even though the services are to be provided by a licensed design professional, the risk is still that of the contractor.

OK. But why do contractors need a design liability policy?

Design exposures and losses are not covered by most Commercial General Liability (CGL) policies. Design exposures are the costs required to remedy negligent design and any necessary reconstruction. When a contractor assumes a Single Point of Responsibility (SPR) role with an owner by use of the design/build project delivery, they are providing project design in addition to their construction obligations. The design exposure assumed under an SPR contract may be direct, in the case of a contractor's own in-house design team, or it may be indirect as a result of subcontracting the design to a design firm. Most CGL policies exclude both exposures.

Why doesn't the CGL Policy cover the design exposure?

First, CGL policies typically provide coverage only for bodily injury (BI) and property damages (PD), as defined in the policy. The definitions of BI and PD usually do not include remedial design and reconstruction of negligent design and other associated damages such as delay claims, loss of use and other economic damages. Second, many CGL carriers are not comfortable with the design exposure presented by either design/build or design delegation and, therefore, place a professional services exclusion on their CGL policies. This will exclude all claims submitted under the CGL policy that arise from design-related services.

What does the Contractor's Program cover?

Our program is designed to meet the specific needs of contractors responsible for design services.

Design Liability

The policy covers contractors for their liability arising out of the performance of professional services rendered by its in-house design staff who are legally qualified architects, engineers, land surveyors, landscape architects and construction managers. The policy also covers the contractor for its indirect design exposure arising out of the performance of professional services rendered by outside design professionals it contracts with when performing design-build projects or design that has been delegated under the provisions of AIA A-201 General Conditions Document.

Agency and At-risk Construction Management

The policy also provides coverage when the contractor is performing construction management services as the owner's agent; an arrangement commonly referred to as Agency Construction Management. Also, where the contractor is acting as the owners agent and holds separate contract(s) for the construction of the project, this is referred to as At-Risk Construction Management. Such construction management services must be defined in a written contract with the client.

Faulty Workmanship of Sub-contractors

When the contractor is providing Agency or At-Risk CM services or acting as a design-builder, the policy covers the failure to detect construction not in accordance with the construction documents. There must be a contract with a fee for CM services that define the construction management services provided. So, coverage is not provided for the failure to detect faulty workmanship of others under an owner-contractor agreement where the contractor is simply providing general supervision of construction.

Pollution Coverage for Job Site Activities

Contractors Pollution Liability (CPL) coverage can be provided either as a stand-alone policy or under a combined Contractors Professional and Pollution Liability Policy. The CPL forms provide coverage for pollution claims arising from the job site activities of the contractor or its subcontractors.

Coverage at a Glance

• Coverage for design errors and omissions
• Coverage for failure to detect or quantify the presence of pollutants (Pollution Coverage)
• Coverage for pollution claims arising from job site activities
• Joint Venture coverage
• Worldwide coverage - both indemnity and defense
• Agency and At-Risk Construction Management
• Faulty workmanship of subcontractors

Experience the difference a market leader can make in helping you manage your professional and pollution liability risks. To learn more, contact your independent agent or broker to learn more about the Contractors Program, or call:

Victor O. Schinnerer & Company, Inc.
Two Wisconsin Circle
Chevy Chase, MD 20815-7022
Phone: (301) 961-9800 Fax:
(301) 951-5444
E-mail: vos.contractors@schinnerer.com

For informative risk management information visit our website at Schinnerer.com. Experience the difference a market leader can make in helping you manage your professional and pollution liability risks.

This fact sheet is for illustrative purposes only and is not a contract. It is intended to provide a general overview of the plans described. Please remember only the insurance policy can provide the actual description of terms, coverages, amounts, conditions and exclusions. Also, this fact sheet is intended for general information only and should not be construed as legal advice or a legal opinion on any specific factual situation.

Where can I find the application(s)?

Applications for the program can be found on the applications page or by selecting the Applications link from the left navigation of this page.

What is the minimum premium for the Contractors Professional policy and for the Contractors Professional and Pollution policy?

The minimum premium for the Contractors Professional policy for General Contractors is $7,500 for $1,000,000 per claim and aggregate limits and a $10,000 SIR. For Specialty Contractors the minimum is $4,000 for $1,000,000 per claim and aggregate limits and a $5,000 SIR.

The minimum premium for General Contractors for the combined Contractors Professional and Pollution liability policy is $10,000 with a $1,000,000 per claim and aggregate limit and a $10,000 SIR. For Specialty Contractors the minimum is $6,000 for $1,000,000 per claim and aggregate limit, and a $5,000 SIR.

Are sample policy forms available on the website?

Yes. Sample policy forms can be found on the policy forms page or by selecting the Policy Forms link in the left navigation of this page.

Will you quote limits higher than the insured has for their combined General Liability and Umbrella limits?

No. After verifying the contractors GL and Umbrella limits we will offer limits up to or equal to the limits carried for GL and Umbrella coverage combined.

Do you require subcontracted designers to have Professional Liability Insurance?

Yes, we require a minimum of $1,000,000 for the primary subcontractor designer. We are willing to provide a quotation even if the primary subcontractor designer has limits as low as $500,000, for an additional premium charge.

Is this policy admitted or non-admitted?

The policy is written on a non-admitted basis and can be issued only for agents with an Excess and Surplus Lines License in the state the risk is domiciled.

Which CNA company will be used to provide this coverage?

The policy will be issued by Columbia Casualty Company. They carry an A-15 Best rating.

How is the policy rated?

We use the information supplied to us by the insured for items A-H on Question 6 of the application. Some additional factors that influence pricing are the limits required for primary subcontracted designers, risk management and loss prevention activities, and past claims history.

Your policy provides for the failure of the contractor to detect faulty workmanship, but excludes "the construction means, methods, techniques, sequences and procedures employed by you or on your behalf." Just what coverage are you providing?

Our policy does provide coverage for the Contractors Legal Liability for their failure to detect the faulty workmanship of their subcontractors but only on those projects where the insured is providing professional services. The intent of the means, methods, procedures, techniques, exclusion is to exclude BI and PD which typically is covered by the CGL policy. This exclusion was added to avoid duplicate coverage and to prevent coverage disputes between the GL and the Professional Liability carrier. Should economic or consequential losses ensue as a result of the faulty workmanship of their subcontractors this policy will respond for those damages as long as the Contractor is providing professional services at that job site.

Do you provide risk managment materials and services to your policyholders?

Yes. Risk management materials and services are provided to our policyholders at no additional cost. The information is password protected. Only policyholders and brokers/agents who have a user ID and password can view the information.

Is there a page on the website where all sales and marketing information is available?

Yes. The Contractors Toolbox includes links to all of our marketing and sales information on the Contractors program.