With all the stuff to worry about during a construction project, one of the areas that’s commonly overlooked is insurance coverage. Owners and contractors often assume that the parties they’re contracting with have adequate insurance, or that the information on an insurance certificate (which, by the way, isn’t binding on the insurance company) is an accurate picture of a company’s insurance profile.
These assumptions are especially dangerous if there is a lack of professional liability insurance for design-build work. In design-build projects, the general contractor (GC) or one of its subs, rather than the owner, hires the architect and engineer to design the project. But even if your project isn’t 100% design-build, there’s a good chance that some of the design work – for example, fire sprinkler design – won’t be performed by the project architect hired by the owner. Either way, you can bet that the liability policies of the GC or its subs don’t cover the errors of architects or engineers hired by the GC or sub to design the work. So, without coverage through a designer’s insurance, and without coverage through the GC’s or subs’ liability insurance, there’s a hole in insurance coverage. And even if a design professional hired by the GC or a sub carries insurance, it may be inadequate to cover the potential loss.
One option is to acquire Contractor’s Protective Professional Indemnity and Liability Insurance, or CPPI. CPPI is insurance that a contractor can buy that indemnifies the contractor for negligent errors and omissions of a design professional hired by the contractor. If written properly, CPPI gives the contractor coverage for design errors if the design professional’s own insurance comes up short.
Like all insurance, CPPI isn’t perfect. CPPI will likely have exclusions that will limit coverage (for example, for mold), and, to shake out a policy’s weaknesses, the fine print should be carefully reviewed. And because CPPI doesn’t kick in until it’s determined whether the design professional’s own insurance applies, it may be months or even years until the CPPI policy responds to a claim. But if design work isn’t otherwise adequately insured, CPPI could help a contractor protect itself and the project owner.