With the popularity of high-value construction projects now involving various service contractors, Tokio Marine emphasizes the importance of professional liability coverage as a means of risk mitigation and cost control. The company’s Architects and Engineers/Contractors Professional Liability Division, which is part of its Cyber and Professional Lines Group, has received Insurance Business America’s 5-Star Professional Liability Award due to its useful product offerings. In this interview with IB’s Bethan Moorcraft, Steve Hansen, vice president of underwriting , talks about the components of a professional liability policy and the related claims that the company has observed.
Tokio Marine’s professional liability program for contractors has been provided for over two decades, says Hansen. This program is intended to protect contractors such as those involved in design, land surveying, building and construction, as well as those that provide electrical, mechanical, fire protection and telecommunications services. Tokio Marine’s definition of professional exposure includes engineering, constructability review, and design assistance, which are all services needed in a construction-only project.
Hansen says that professional liability coverage matters because it is often stipulated in contracts and also motivated by the increase in design-and-build projects handled by professional sub-consultants instead of in-house architects and engineers in a construction firm. This type of insurance coverage is helpful if disputes arise between contractors and their clients, for example, regarding design errors.
Tokio Marine HCC Cyber & Professional Lines Group has seen claims involving water intrusion (such as a leak on the roof or a problem with drainage) and soil sediment. There are also claims related to delays and cost overruns, usually in residential projects.
The contractor’s professional form includes three coverages: rectifications, which allow the insured to report a design error to the carrier without waiting for a claim to be made; contractors’ pollution, which could result from activities mainly at the job site; and contractors’ protective, which identifies the insured party for costs incurred because of errors committed by a design firm.
“Some of the things that a contractor can do to help minimize claims would be having good risk management in their contracts and certainly having a properly defined scope of services. Good documentation on the job site [is] always key, especially in the event of a claim,” Hansen said.
He adds that a client risk-selection process can also help contractors avoid projects that may be litigious or project areas where the contractors have no experience. Sufficient time for the design process is also crucial to prevent errors, he noted.
“Oftentimes, you see construction projects that are fast-tracked or rushed […], so having enough time upfront for the design team to do their job is really important,” he said.
