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in different ways the concept that the customer wants. But, underneath all that, it transfers all risk of the project to the winning bidder, or the contractor who wins the project. In the past, when the customer provides the plans for a project, they have assumed that liability for the design work. There are multiple layers in a construction project, so, if there was a problem with the design, and a contractor built it to the design, they would not have responsibility for the faultiness should a problem arise from the design. In those cases, it would have been up to the customer to require professional liability insurance--to be placed for the designer they hired. Now, with the design-build model, that diligence rests with the prime contractor who bid on the project—who hired the designer to make their proposal. On top of that, not only is there liability for the design, but there is also liability for the actual performance of the contract. What a lot of contractors don’t realize is that professional liability is not a statutory requirement, unlike workers compensation or commercial auto liability. So, while it may not be a legal requirement, or even specified as project requirement, the professional liability exposure exists.
So, the liability is still present?
It is ever present. In the design-build model, the full risk is effectively transferred from the customer to the prime contractor. So, it becomes the prime contractor’s responsibility to make sure they are adequately covered—people and professionals they hire on should carry professional liability insurance.
If professional liability is not a statutory requirement, the project liability rests with the prime contractor?
The liability is transferred to the prime contractor. Now whether or not they want to transfer that off via professional liability insurance is their decision. But, what they need to understand is that the liability exposure is there—with them. Should businesses or anyone considering doing construction be concerned if their architects or construction team are not carrying professional lines coverage? Absolutely. Should there be any problems down the line, and there is demand or claim for restitution or bodily injury--it will either be against their self-insurance or the professional liability insurance the respective professional carries.
construction professionals load in their business insurance packages?
Of course, the local statutory requirements are: workers compensation and commercial auto liability, USL&H (this coverage is federally required if work is being done near a body of water—dockside, wharf ). What contractors need to be aware of is, while the body of the contract may not require a particular coverage, they are still required to comply with all local and federal laws. It’s really upon your due diligence with your legal counsel to review these issues. And, while it might require some expense in the beginning, it will safeguard you and your customers.
Can you give an account of professional liability coverage being utilized?
There was a construction element that collapsed, which was deemed to have an engineering fault, so that was a direct claim against the engineer. If the prime on the project had not required his project professionals to carry professional liability, that loss would have been the responsibility of the prime contractor. In this case, they were able to deflect liability.
So, what would compel a construction professional to acquire this coverage?
First and foremost, it would indicate financial responsibility. Customers and primes would certainly see that organization as adhering to some sort of professional integrity, that they would make sure this resource (professional liability coverage) was present in their representations to prospects. It’s just a prudent business choice.
In closing then, what should www.guamcontractors.org
CONSTRUCTION NEWS BULLETIN
SEPTEMBER2010 | 17