¶ Intro / Opening
contractors may assume they don't need professional liability coverage. But as the traditional construction delivery model evolves and the lines of responsibility between contractors and design firms blur contractors face increased exposure. Fortunately, professional liability insurance is available to help protect contractors from the risks that accompany industry changes. Dave Finneran is an assistant vice president and broker out of our
Boston Massachusetts office. And he's got lots of great information about this specific professional coverage for contractors. Welcome to the placing you first podcast from CRC group. I'm your host, Dan Wentz. And this podcast features news and insights from CRC group's vast knowledge base of 4300 plus associates who right in excess of $23.5 billion in premium annually, and we're giving you insider access to what's happening in our company and the types of insurance we
place. This is the placing you first podcast Dave, welcome to the podcast. It's been a minute since we've talked, I think the last time we connect it was right before the holidays. How were your holidays?
The holidays for us? Were great. Everybody's happy, healthy. The kids had a good time I weigh yourself.
Yeah. Really good here. The weather went from like, I don't know, 85 degrees in Birmingham, Alabama to 30 some degrees this morning. And I'm sure that's not nearly as cold as you guys are dealing with. But up there in Boston, right. Yeah, we
started about 18 degrees today. So it wasn't the worst winter day, but certainly definitely a lot colder than where you are.
You are tougher man than I am. Say that. So David, we're talking about contractors professional liability. And this is an interesting type of insurance. Because I would think that contractors feel like they have everything figured out with their CGL policy. Right, and the the workers comp insurance that they already have, why should contractors and their agents consider purchasing professional liability coverage?
¶ What should this coverage be purchased?
That's a really good question. I think that a lot of times what ends up happening with contractors is that they assume they have all the liability they need in the general liability policy. One of the limitations of the general liability policy is that it is only triggered by bodily injury or property damage that that includes when ISO adds their endorsements for professional.
And the biggest issue that contract is faced with regards to professional liability is economic loss, which just is never triggered in and of itself with a motto line general liability policy. And so the need for contractor professional starts with economic loss, and then it derives from there, we've got a couple of things to talk about that kind of build out from that.
¶ What are some likely claims?
What are some areas that we see experience a claim in when it comes to this?
Well, you know, many contractors get asked for advice and input, and both pre construction and also post construction phases that creates a liability, it's more of an opinion than rather a hands on service. And so you've got a potential there that if something leads from their advice to a cost overrun or other issue of economic loss to the owner of that project, that it's going to come back and basically create a liability for them. In other areas when they
take on more responsibility. A lot of times in different states and the subcontractors who actually will suffer the cost to redo or also penalties and fines may come back after a general contractor and again, Sue that general contractor for economic loss associated with the project delays and cost overruns.
Does this cover things like faulty workmanship too?
It does. I mean, before we get into faulty workmanship though, just to kind of highlight it, I wanted to give you a couple examples of what I was talking about where contractors like HVAC can provide both design and design specs as well as fabrication and
installation services. And in that instance, you can see how hands on service can create an economic loss is all as well as the advice they're giving to other people because sometimes they're asked to specs in a design professional is going to rely on those specs to create a blueprint that drawing. At other times, they're actually the in house designer. So now they've got a full design build
exposure. A general contractor who typically manages a project, what we're seeing the trend to be now is that more and more, they're being asked to also select the design professional. From a court standpoint, when that happens, they are treated more like a design build firm than they are like a manager of
a project. And that creates that liability we talked about as far as an economic loss, for cost overruns for time delays, it creates liability because now you've vetted and approved a contractor, yourself versus the owner. So now you've taken on that liability for yourself. And then when that happens, if there is a design error, you end up getting yourself into that claim, which we'll talk about a little bit more as we get into protective indemnity and a
couple other topics. Other models you know that you're typically used to seeing this type of coverage on, you know, construction managers that are at risk have typically always covered it because they're responsible not just for managing the project, but for subcontracted, as you know, selection, design build firms basically take all the stuff we just talked about. And they say, not only can we do all that, but we're gonna deliver it on time
and on budget. So they've got the highest exposure out of all of this, but everything into plays with that financial loss scenario, and then goes from now.
Yeah, and it sounds like that might be a very common scenario, because when you're, when you're booking a contractor to do work for you, you kind of just want the final answer, you know, you don't want to deal with a designer, with then the contractor, and you're looking for them to work together, right? So why not just let the contractor pick the design firm?
Yeah, including owners in all, in all regards, are actually responding to that same issue where they feel that because they don't know the designer, they want it done quickly. They want it done effectively. general contractors do know, typically the designers that are good on certain projects, so they're relying on their expertise and selecting that design professional as well as all the subcontractors for the jobs more and more. And that's where that exposure comes
¶ Do you have any examples of specific claims or scenarios where this comes into play?
in.
Do you have any examples of specific claims or scenarios where this comes into play?
Yeah, I think that what we talked about in general is the economic loss issue, we're gonna build up from there, there are certain things that depending upon the level of contracting services provided, we'd like to see in a policy so big claims come in, in the areas of protective indemnity as well as mitigation, rectification expenses. And these are some of the more common things that
we're seeing today. So that in that scenario, where I'm a general contractor, and I now hire design professional, let's just say, I did have them design a shopping center, that design professional, we find out later on, specify the wrong size, rebar for that type of construction, we're about $2 million into the project, we realize there's a problem, it's a $5 million total project, we know there's going to be now a cost overrun, there's going to be a time delay, we also need to
figure out how we're going to address the issue of the design error, who is responsible and what happens most design professionals are still sticking to the standards where they are saying that they're not responsible for more than a million dollars. In some cases, they're still saying we're only responsible for the amount of the contract that you gave us.
And those liquidated damages have been held up those clauses and most courts throughout the United States, we're seeing some trends with that might change. But let's assume across the United States, that is the issue. So now we have a design professional carrying a million dollars worth coverage, that design professional makes an error, you hide that design professional. So now the owner of the project is coming after you. It's going to cost $3
million now to problem. You're capping out at a million dollars potential liability coverage with that design professional, you as the general contractor now have a $2 million gap in coverage. One of the beautiful things about a contractor professional policy is that we can include a clause called protected indemnity. It's called different things by different
carriers. But essentially what it does is it lets that contract to file first party claim with their own carrier saying that we realize that there has been a mistake here, it's the design professionals error. We are bringing suit against that design professional, but we have a gap of $2 million. So as that claim progresses, our carrier is going to sit access on a first party basis to reimburse us for that additional 2 million provided that liability is established with that design
professional. And that's the essence of what it is it's really a stopgap measure that we can add in in 98% of the cases was contractor professional, to really a key coverage. And something really important to any contractor whether it's a street and road contractor that's hiring an engineering firm, before they lay the sewer lines or whether it's a general contractor putting up a building, that's an essential coverage to have in the policy.
The other aspect of that and kind of the sister coverage is mitigation or rectification coverage. Mitigation, rectification coverage varies by Carrier terms are a little bit different. But the essence of that is very similar to what we
just talked about. The difference is is that the general contractor when they realize is a mistake early on a project and they know that things have to be redesigned and retooled or recalibrated or, you know, I've got an instance where when I first started as an underwriter, we had a survey that actually was off by two inches and applaud in Las Vegas.
And then we had to neighboring casinos, the neighboring casino that had the two inch basically override on their property allow that contractor to complete construction of the wall and they came out and said really Hey, nice wild take it down and our guy was left in the bag for about $1 million in that case because they didn't have mitigation coverage. And they didn't have protective indemnity. Mitigation is actually like I said, it's a first party coverage that
addresses that. But as soon as you notice as an issue, you go to the carrier and in partnership with the carrier, you produce documents to say that we know that this is an error. We want to stop construction and fix this now so that we don't have a claim for $5 million or $3 million later on. Most cases carriers are going to say you know what, if there's sufficient facts, they're going to allow that contract and make those don't corrections without bringing suit against the design
professional directly. So it kind of bypasses the whole litigation chamber. And it brings it into something where now you're in partnership with the carrier. So it's a great coverage to have, again, we like to see both coverages on the policy, we really feel that they're both really important. And those are some of the main things we look for on the professional side.
Yeah, sounds like something you should definitely add, especially if you're doing some sort of large project or have a client that's working in a large project space like that. Is this something that applies to just large businesses? Are we talking about small businesses to or does it run the whole gamut,
it can be a large or a small business, the essential part to both those coverages is that you as a contractor, hire that design team, and then you realize there's a design error. And that when the coverage really kind of takes takes effect. So it's it's a question of, if you're, if you're the guy doing the framing, and you're just following specs, it's not really a necessary coverage, although we'd like to add it in for belt
and suspenders. But if you are somebody who is responsible to hire a design team, or select a design from three different designs, let's just say, and you say this is the best design that we have, and you find out there's a problem later on, you want to have those coverages in
¶ What's the premium range?
place,
what's the premium range for this premiums do
vary a bit, they start around $2,500 on the low risk spectrum. And usually entry level is 7500 to 10,000, on the high risk spectrum for an average size, midsize firm under a million dollars in revenues. And again, that all depends upon what we're looking to do. But it's a good base point. It's a low entry level cost. And the nice thing about these programs, too, is that you're not just getting professional with it. But we're also looking to add contractor pollution, which is
another whole dimension. So any of these guys that general contractors, design, build contractors, your HVAC contractors, anybody that has a hands on exposure needs contracted pollution, because quite honestly, it's just not covered by the GL. The GL has a specific pollution conditions exclusion on it eight times out of 10, we typically find that there's a total pollution exclusion added to that GL, or we see a very limited sudden and abrupt pollution coverage on job sites only. On a standard
carries endorsement. The contractor pollution policy works in conjunction for the hands on activities, just like your professional works for your advice in your pre construction, selection of subs, etc. The pollution is for your day to day hands on activity and what we like to see what that part of the policy is, even though it's on a combo in your professionals typically claims made, we try to bring the pollution onto an occurrence form. We try to make sure that there's mold whenever
possible. Mold is on and occurrence as well. We cover transport from the point that you leave your yard to the point that you get waste materials to non on disposal sites. If you're a GC, we're looking to make sure that you're covering the subcontractors for that exposure as well. The other thing we're looking to cover with contracted pollution liability is at a minimum, we try to add in sudden and abrupt coverage at the
insured zone location. And the reason that this is really important, I can give you a concrete example of it. We know of an insulation contractor here in Massachusetts that several years ago came to us after they had pollution loss. And basically what happened there was that they had a fire on their site, they had a storage shed with insulation materials.
And in the shed burnt down, the pollution seeped into the ground through the concrete pad, the DPW came out with the fire department and they said, Okay, you can rebuild it. They didn't find any arson or any misgivings, of course. But then they said, in order for you to rebuild it, you need to clean up this site now, because pollutants have gotten into the ground. And when things get into the ground, if you can picture a mole in your own body and you
have a doctor remove that. It's not just a mole, it's a circumference around that. So that's where the expense gets created. If you near water, it gets even worse. Average cost of cleanup things is about anywhere from 70 to $150,000, when there is some kind of a pollution contaminant and that type of
situation. In this case, because that contractor didn't have contracted pollution with sudden and abrupt coverage, he ended up or they ended up I should say, paying out about $80,000 in order to clean up the site before they could rebuild their shed. So the geo area basically said sorry, we've got a total pollution exclusion, the property carriers that would love to rebuild it, but not to clean it up. And the DEP said, Guess what, it's your site, you
clean it up. And so that's kind of the issue where some people forget that with a contract of pollution, you want coverage at your site coverage, moving from your site all the way to the job site, and then all the way to the disposal area, as well as coverage while at that disposal site.
So let's talk about how can, how can agents best help their clients with this? And then how best can you guys help and what advantages do you bring in and how does that in turn help agents help their clients?
¶ How does CRC help agents?
Basically, I get asked a lot of times when someone calls me they're talking about this well who writes this coverage? And I think the best answer to that is that we write this coverage CRC writes his coverage. And we have a team of both professional and environmental experts that do deal in this product line. And one of the nice things is is that at CRC, everybody takes this coverage serious. I could
read 17 different forms. And I could tell you 17 different things about the grant of professional grants of collusion, what is and what isn't covered. And I can tell you that the people in our area in CRC that are specializing in this, just like myself, are taking this coverage serious. And so we give you concrete feedback that you can take back to your insured, we can review a policy that's in place, tell you
if it's adequate. We can take policies rate them good, better, best we can tell, you know, we can do our analysis. And we're always willing to share that information without brokers. I think what makes us different is that if for whatever reason I had a question about a policy or somebody else did, we can pick up the phone at CRC and we talk to each other all the time about
these coverages. That's one of the main things that I can tell you about CRC that's different from other brokers that people talk to me about from the retail side talking to me, we are not afraid to reach out for further expertise whenever it's needed. If it's beyond our scope for what we do, we're going to reach out to the next person at the next level to take care of your client and you. And I think that's a huge advantage of CRC that other folks may or may not have, but I know that we do have
absolutely. And to get a hold of a CRC broker near you. It's as simple as heading to our website, CRC group COMM And there's a producer search up there, just look through that find someone who you think can help you out and if they can't help you out, they'll find someone who can. David, thank you lots of great information here today and I appreciate you taking the time to be on the podcast with me.
It's been a complete pleasure and thanks a lot for setting it up Dan