Project insurance policies typically provide professional liability (errors and omissions or E&O) coverage to a group of design professionals for claims arising from a specific project. Coverage is in force for the construction period plus one or more years after completion of the project. This type of policy covers most design exposures for the duration of the policy under a single limit for a pre-set cost.
With this approach, the project owner is assured that a pre-determined policy limit will be maintained throughout the life of the project, without the worry that one or more of the design team's policies will be non-renewed, cancelled or eroded from claims on other projects.
Project insurance offers a series of advantages to both the project owner and members of the design team. The benefits to the project owner can include:
Design Professionals can also benefit from a project policy:
For particularly complex projects, underwriters benefit from being able to specifically underwrite the project in question. However, the higher limits and long length of the policies tend to offset this benefit. Therefore, project insurance can be difficult to obtain at a reasonable price, if at all, particularly for larger or more complex projects, with condominium and other residential projects being the most problematic at this time.
Limits and deductibles vary with the size and type of the project and the region of the country where the policy is required as well as the legal climate that prevails in that region have a profound affect on availability and pricing.
Owner Controlled Insurance Policy (OCIP) or Wrap-up policy is a single General Liability insurance policy naming all contractors who are enrolled in the project as insured's. Workers compensation coverage is sometimes included as well. In addition to including all insured's onto one policy, it typically provides occurrence coverage for a period of ten years from the date of completion of the project, thus eliminating the need to purchase ongoing policies for the duration of exposure to construction defect claims. Professional Liability coverage is excluded from the typical OCIP general liability policy form.
The benefits of the OCIP are similar to those of the Project Specific policy in that it includes the general and all the subcontractors under one policy with pre-determined limits and deductibles and allows for consolidated claims handling among the parties, which will hopefully lead to a better resolution for all.
OCIP or wrap-up policies were developed to respond to situations where coverage is difficult to obtain. For example in some areas, Construction Defect litigation involving residential projects has driven insurance carriers from the marketplace. This has made it difficult for some or all contractors that work on these projects to obtain general liability insurance. OCIPs are also attractive to public entities seeking greater control over insurance programs affecting public projects. These policies are expensive and underwritten very carefully by the insurance industry. One benefit for all parties is the risk management steps that are required of the developer prior to placement of the policy. For instance the developer must submit the soils report for review by an independent engineering firm, some hazardous construction applications such as EIFS are monitored, they must implement a quality assurance program during construction and have on-going inspections during construction with a Home Warranty program in place for buyers and maintenance requirements. The result of this process will be an improved quality of construction, thus reducing the likelihood of litigation.
Oftentimes, the developer or project owner will tell the design professional that there is Professional Liability coverage under the OCIP/Wrap-up policy. This is usually not true. If the design professional is confronted with this situation, they should ask for a copy of the policy with all terms and conditions and then send it to your insurance broker for review.
In some cases, the General Liability insurer has "deleted the Professional Liability exclusion". If this has occurred then the general liability insurer is providing Bodily Injury and Property Damage but the policy does not provide coverage for Consequential Damages such as delay, lost profits, loss of use, etc.
The design professional should enlist the assistance of a professional liability specialist as well as their attorney in understanding these vastly different types of insurance policies. They can be very beneficial to you in the management of your firm or detrimental if you do not understand what is covered and most importantly, what is not covered.
Lynn Campbell is a principal with Assurance, Ltd. of Las Vegas, a locally owned independent insurance agency serving Southern Nevada. She specializes in providing insurance and risk management solutions for Design Professionals. Assurance can be found at http://www.assuranceltd.com. She is a member of a/e ProNet and currently serves on the Board of Directors.
This article is intended for general discussion of the subject, and should not be mistaken for legal advice. Readers are cautioned to consult appropriate advisors for advice applicable to their individual circumstances.
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