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Professional Liability Exposures to Construction Companies

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Professional Liability Exposures to Construction Companies

By Mary Bishop
October 13, 2016

Long gone are the days that only Architects and Engineers needed Professional Liability for their design errors. In the U.S. litigious environment, there are a host of ways construction companies can be exposed to professional allegations. And, with the varied project models now being employed including Design-Build-Operate-Maintain (often the PPP model), Integrated Project Delivery and Design Build / Assist, a professional exposure is undeniably created.

To start, the mere phrase “Construction Manager” (CM) implies a professional capacity in which a contractor oversees a project. Is the CM in charge of scheduling, selection of subcontractors and selection of material providers (i.e., supply chain management)? What about site safety services? All of these actions can lead to an expectation of professionalism that implies a professional service.

And what of subcontractors and their exposures? Many subcontractors provide design assist activities.

As an example of the varied exposures by entity, an architect designs a building under contract with the owner which is the traditional Design Bid Build model. The owner dictates that a BIM model be developed to assist the engineer in foreseeing potential design issues and ultimate correction. The design assist subcontractor is under contract with the Construction Manager. What exposures exist in this scenario? To start, the Owner has retained the risk of design related claims on a first party basis and also vicarious third party liability from the Architect’s operations. The Construction Manager too has vicarious liability having contracted with the design assist – BIM subcontractor. And the BIM subcontractor has a direct exposure for their design assist activities.

So what constitutes the need for Professional Liability coverage with subcontractors? Any time there is a “design element” to the operations of a given firm and their upstream contracting party. Specific examples (not fully inclusive) are when a licensed Professional Engineer stamps drawings or when drawings themselves are produced. Think about fire sprinkler subcontractors or curtain wall subcontractors. These subcontractors have inherent design exposures in their operations.

When thinking of your firm’s operations, please think about the different activities that may give rise to a Professional Liability exposure – either on a direct or indirect basis.

For more information, please reach out to Mary Bishop at Construction Risk Partners.