Professional Liability Risks Associated with Construction Projects

Professional liability insurance is often an afterthought for large-scale construction projects. With builders risk, general and excess liability, and workers compensation risks to be addressed, professional liability often does not require the immediate attention of owners and contractors that are responsible for insuring the work on these projects and may not be considered until the process of insuring other risks is well under way.

by Rodney J. Taylor
Aon Risk Solutions' Environmental Services Group

With new project delivery systems including design-build and public private partnerships (also known as 3P projects), the lines between design and construction are becoming blurred, and professional liability risks are becoming more difficult to insure adequately. This article discusses the alternative measures available for insuring claims arising out of the work of design professionals on construction projects and offers comments on the strengths and weaknesses of each approach.

Professional Liability Risks Associated with Construction Projects

Most professional liability claims are made by owners against architects and engineers they have hired to provide professional services related to the design and construction of a building. Claims may arise out of the alleged negligent acts, errors, or omissions of the design professionals in rendering services related to the project where failures of structural components, major building subsystems (i.e., curtain walls, roof assemblies, etc.), or equipment result in losses or damage to the owners and third parties.

Claims by owners may also allege breach of contract where design professionals have failed to meet the terms or conditions of the written contracts for professional services. Breach of contract typically must be resolved in accordance with the provisions of the contract itself and involve principles of contract law and is not addressed by professional liability insurance. Errors and omissions in rendering of professional services may involve bodily injury or property damage, but these are often the subject of general and excess liability insurance rather than professional liability coverage.

Damages other than bodily injury and property damages associated with professional errors and omissions may be economic in nature and may include the cost of redesigning portions of a project that fail to meet professional standards and delay in completion of the structure (and associated loss of anticipated rental or sales income). These economic damages are the most common losses that give rise to professional liability claims against architects and engineers working on construction projects.