Historically design and contractor roles were clearly defined, with design errors covered under a design professional’s Errors and Omissions policy. Design professionals started to limit their exposure to their project fees, and owners necessarily required protection for vicarious liability for their negligence (and professional exposure from any self-performed work). Owners started to shift more contractual risk towards the contractors, requiring input on the pre-constructability reviews, value engineering, construction management, project management, etc., however contractors do not necessarily have insurance coverage to respond to claims or indemnify the Developer for this work. And though a Developer purchases operational commercial general liability insurance, there is very limited coverage with respect to professional liability and more importantly, there is no coverage for financial loss claims.
General liability policies need an “accident” to trigger a claim. Most professional losses arises from “financial damages” and thus would never trigger a general liability policy.
A Developers’ Errors and Omissions/Professional Liability (E&O) policy would provide defense and damages to a Developer that they become legally obligated to pay from a claim involving a ‘wrongful act’. A ‘wrongful act’ means an actual or alleged breach of duty, neglect, error or omission committed in performing real estate development professional services (subject to policy terms and conditions). The coverage can respond to third party claims against them and arising out of their own and their subcontractor’s professional activities, such as construction management, development management, design, specifications, site inspection, feasibility studies, property management, and technical information calculation and surveying.
Available under the policy can also be coverage for: (i) dishonest or fraudulent acts by former or present partners, directors, employees, consultants and sub-contractors, (ii) a breach of professional duty of care resulting in pollution. Retroactive coverage may be obtained, with sufficient underwriting information provided.
The coverage is written on a ‘claims made’ basis, where coverage is triggered during the policy period in which a third party claim is made against them, alleging negligence by the insured or an independent party employed under contract for professional activities. Included within the limit of liability is defense costs and damage awards or settlements. E&O policies will not cover intentional, fraudulent or illegal activities but will defend against these allegations until they are proven in a court of law. Some examples of claims include:
Intech can review a Developer’s project structure and method of delivery, and identify within their contractual obligations where exposures exist that would be covered under a Developer’s Errors and Omissions Liability policy.