How to Handle Liability Insurance for Contractors
November 30, 2011

By Sahely Mukerji, smukerji@glass.com

The implementation of design-assist in the project delivery process has brought the glazing contractor on board the design team early in the game; however, it also has him paying for professional liability insurance for contractors.

"We've seen that requirement recently in some subcontracts where it appears general contractors (GC) doing work as 'construction managers at risk' are trying to push off some potential liabilities onto their subcontractors," says William C. Keen, executive vice president and chief operating officer of TEPCO Contract Glazing Inc. in Dallas. "This requirement is fairly new and, since there is perceived exposure, may not go away."

Professional liability coverage for contractors is available now to subcontractors, but, of course there is an additional cost for this coverage, Keen says.

Enclos Corp., headquartered in Eagan, Minn., has carried professional liability insurance for many years now, says Mic Patterson, director of strategic development at Enclos.

According to Patterson, the design-assist work mitigates risk and makes for a more successful project, especially when any form of innovation is part of the building program. "But it does create the potential for professional liability for those that participate in process," he adds. "This is nothing new to contracting firms that participate in design-build work, as it creates similar potential liabilities."

However, the insurance industry is playing catch-up in responding to these changes. "This is important, because the lack of effective and efficient insurance products can hinder and even strangle evolving project delivery processes," Patterson says.

Attila Arian, president of seele Inc. in New York, agrees. "Based on our experience, the biggest risk exposure in design built contracts is budget overruns and delays, which are not covered by the general liability insurance or other insurance coverage," he says. "Insurance programs need to cater to the needs of the contractors and offer specific coverage for design-build projects."

Liability with regard to building information modeling software is another area that needs the insurance industry's attention, Arian says. "The interactive collaboration of multiple trades and the design team creates efficiencies and benefits the project in many ways," he says. "However, it exposes the individual contractors to risks that are currently not covered by the general liability insurance."

Assuming the insurance industry started offering contractor specific products, who would pay for it? "[The GC doesn't] want to pay and they don't want the liability," Keen says. "So, we've stricken it from the subcontract. They normally come back and object, and we say we're not the architect or engineer of record on the building, so, generally we compromise…"

Before paying for the insurance there are a couple of things to consider as a glazing subcontractor, Keen says. "First, the glazing sub has general liability insurance that will cover bodily injury or property damage due to an improper design of that glazing contractor," he says. "In that regard, the risk to the glazing contractor is minimized. However, there is exposure if an owner were to discover later that the project material provided does not meet the function intended, whereby economic loss might be incurred due to 'loss of use' of property during rework." That is not covered by general liability insurance, he says. "If a glazing contractor develops plans and specifications for his materials then he will have exposure, and the general contractor will try to make sure that the glazing contractor assumes that risk."

And secondly, "the prudent glazing contractor will be employing, for his design calculations, a professional engineer who carries errors and omissions insurance," Keen says. "Such insurance does give the glazing contractor some protection, but if the glazing contractor is performing the design, he may be assumed to be acting in the capacity of a design architect and thereby may not have insurance coverage for his work in that capacity."

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