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By Raymond F.H. Bustamante | Thursday, August 1, 2019

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Too many firms grow for the sake of growth, only to suffer when the end product does not meet the client’s expectations. Managing growth with a balanced view of a firm’s own talent and core service structure helps a best-in-class contractor avoid professional liability claims. Historically, firms that do not focus on talent acquisition and management do not fare well through market cycles.

Beyond the shortage of talent, many contractors continue to take on projects outside their skill sets, as well as contractual undertakings that blur the lines between design and construction services in the ever-evolving construction marketplace. Once a niche model, design-build methodologies now represent 40% of the nonresidential construction marketplace and are likely to support more than $1 trillion in building projects between 2018 and 2021, according to the Design-Build Institute of America.

DBIA also estimates most design-build projects are completed 102% faster than with design-bid-build methodologies. That said, expedience has its downside. This is particularly true when constant design updates and alterations supersede the project’s overall integrity.

As a result, responsibility and risk have intertwined in this highly litigious marketplace to make contractor’s professional liability (CPrL) and protective errors and omissions (E&O) policy forms a necessity for overcoming industry challenges and transferring financial exposures to third-party carriers when things go wrong. 


A risk management plan is an imperative for preventing loss and ensuring profitability. 

Cross-functional teams should collaborate to establish goals and strategies that not only identify and anticipate potential risks, but also that mitigate the severity of challenges once they arise. 

With the goal of protecting the assets and financial well-being of the company during times of crisis, these plans should provide recommendations for enhancing everything from business management and client satisfaction to staff training and development. Specific elements often include the:

  • understanding of professional liability risks (standard of care), the contractor’s role and the allocation of risk between all of the project’s parties;
  • thorough review and negotiation of all contract terms and conditions, including the clear definition of services and the criteria for providing additional services;
  • communication, decision-making and documentation involved in each project;
  • contingencies for dealing with challenges or changes that occur throughout the design and construction process;
  • review of completed projects and lessons learned;
  • assurance of the proper coverage levels and terminology for the services rendered; and
  • methods for retaining and hiring talented industry professionals.


While CPrL and E&O policies have become increasingly prevalent for managing risk, it’s important to realize that not all policy forms are written with similar terms and conditions. In addition, carriers have been known to favor certain industries over others, while including specific exclusions, enhancements or requirements into their policies depending on the company, project type, potential risk and even the application’s geographic location. 

Subsequently, every contractor should work diligently with their brokers and underwriters to supply the corporate and project information needed to obtain the best possible policy terms in the marketplace. This process often starts with detailed answers to questions.

  • Have your revenues fluctuated by more than 10% during the past five years?
  • What percentage of your current client roster are repeat customers?
  • What is your employee retention rate?
  • Does your firm employ a full-time risk manager?
  • How many professional liability claims has your company filed within the past five years?
  • Has your firm built similar structures in the past? What were the challenges?
  • Will the project employ any new innovative technologies?
  • Is there a formalized process for dealing with change orders or communicating problems and issues?


When choosing a CPrL or E&O policy, remember that policy forms differ—sometimes dramatically—from carrier to carrier. Questions to ask a broker/insurer include:  

  • Is the insurance provider financially sound?
  • Do the individuals managing the program have a good reputation and history of servicing the business from both a claims and underwriting perspective?
  • Does the insurance carrier specialize in providing CPrL or E&O to contractors? Or do they also insure other unrelated businesses? 
  • Does the insurance carrier have the capability of meeting the firm’s project specific needs? 

Many of today’s project owners are demanding evidence of professional liability insurance from both design and construction teams. However, this doesn’t mean paying premium rates for comprehensive protection. The old adage of “an educated consumer makes the best customer” definitely rings true for CPrL and E&O insurance for construction firms. 

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Obtaining competitive terms in a complex marketplace

By Raymond F.H. Bustamante

The Construction Specifier
June 2019

Driven by a strong economy, the easing of lending standards, and a healthy commercial real estate marketplace, construction starts are expected to total about $800 billion in the United States, according to the Dodge Data & Analytics’ 2019 Construction Outlook.’ Although this fails to capture the double-digit growth of recent years, the report confirms the likely match of funds spent on commercial construction last year.

While the industry’s outlook bodes well for the near future, concerns have heightened due to an increase in the liability claims plaguing construction projects since the market’s resurgence during the last eight years. In many cases, these exposures have paralleled the work of builders who have taken on new assignments without the prerequisite experience and/or failed to deliver on the sustainability demands of owners.

Other problems have emerged due to the fastpaced practices now embodied within many construction projects. This includes replacing the clear-cut roles defined by the design-bid-build project delivery methods with the customary overlapping responsibilities of design-build models. The problem is these blurred lines have not only placed a greater emphasis on expediency, but also made it increasingly difficult to pinpoint responsibility when things go wrong-a necessity for quickly and efficiently resolving claims and completing projects on time and within budget.

As a result, contractor’s professional liability (CPrL) policies are becoming popular for their ability to cover damages arising from the acts, errors, and omissions of professional services performed by or on behalf of any construction firm, be it a general contractor (GC), designbuilder, construction manager (at risk or agency), or specialty subcontractor. In addition to third-party liability, some CPrL programs now offer first-party coverage-protective or rectification (i.e. mitigation of damages).This coverage enhancement indemnifies the named insured for costs it is legally entitled to recover as a result of negligent acts, errors, or omissions committed by the design professionals under contract with the named insured. This coverage is in excess of the design firm’s professional liability insurance.

Given these facts, contractors are constantly evaluating their risks and options for obtaining the most competitive CPrL terms available in the professional liability insurance marketplace. This entails exploring the steps necessary for demonstrating stable business models that compare favorably to best-in-class contractors, in addition to successfully managing risk through every project phase.

For most contractors, the process often begins with the development of a risk management policy and plan, which is essential for loss prevention, a key to financial success and establishing benchmarks and metrics. When integrated into the company’s culture, the plan can have a significant impact on business performance as well as the positive management of projects and finances. This includes developing protocols with leadership and a cross-functional team of employees to:

  • identify and anticipate the potential risk factors for each project;
  • avoid or mitigate risk through advanced planning;
  • minimize the impact and cost of risk through active project management, training, and organizational accountability;
  • create contracts clearly establishing fair and balanced terms and conditions, while carefully defining accountability, responsibility, and the roles of everyone involved in the project; and
  • establish and maintain sufficient contingency throughout all project phases.

Other important factors for determining favorable CPrL policy terms with insurers involve clearly detailing the construction firm’s growth and success. Worth citing are the statistics and facts related to the retention of senior executives, five-year revenue averages, payment records, and percentage of repeat customers. It is advisable to also include the best practices learned and shared throughout the company’s history. On a project-specific basis, the delivery method employed, key influencers surrounding the firm’s quality control (QC) methods, experience building similar structures, core competencies, change order processes, and familiarity with local ordinances and governments should be noted.

Unfortunately, there are few shortcuts for ensuring both the integrity of the construction firm and the quality of the project work. Despite best efforts, challenges occur on nearly every jobsite, both big and small. It is important to note minor projects do not necessarily translate into small claims. Errors and omissions are a fact of life, especially within this rapidly evolving and changing construction landscape. Accordingly, every contractor has an obligation to instill the best possible risk management strategies into the business.

The increasing level of risk does not mean a contractor has to pay a premium for the appropriate level of professional liability coverage. A contractor can secure good rates with a best-in-class benchmarking approach to business. The results  will not only protect the company from costly construction challenges, but also enable the funneling of saved funds into other growth areas.

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Raymond F.H. Bustamante is the executive vice president of Berkley Construction Professional. Bustamante has more than 20 years of experience underwriting design and construction professional liability insurance. He has originated many of the owners’ and contractors’ protective insurance coverages recognized industry-wide as a suitable approach to underwriting project-specific design and contractor’s professional liability (CPrl). Bustamante can be reached via e-mail at [email protected].


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25 February 2019

In today’s commercial construction environment, risk and reward are deeply interconnected. This is especially true in increasingly popular design-build scenarios, which virtually eliminate the steadfast boundary of responsibilities that traditionally existed between contractors, architects and other building professionals.

As a result, the efforts of general contractors have intertwined with design professionals so deeply that their consultative advice alone could lead to extremely complex, costly and timely liability issues when problems arise. Many project owners demand evidence of professional liability insurance from both the design and construction teams, while others even purchase project-specific coverages to insure the entire design team from exposures. In legalese, the goal of these policies is to indemnify the owner against the damages, claims and expenses incurred as a result of the negligent acts, and errors & omissions arising from the design and construction team’s services.

Two coverages address this exposure: a project-specific policy, which insures specified design professionals on a primary basis in replacement of the practice insurance; and a protective E&O policy, which protects owners or design-builders against design professional claims in excess of the practice coverage. Both types of policies usually include retroactive dates, course of construction coverage and extended reporting periods for filing latent design claims.


Significant limitations exist under the project-specific policy. If recovery is isolated to firms specifically named on the policy, it may preclude owners or design-builders from accessing the design firm’s or contractors’ practice professional liability policy due to cross-liability exclusions. The reality is that the owner or design-builder could wind up paying for two policies with access to only one with limited coverage.

There are numerous recorded instances where the full limits of a project-specific policy were exhausted solely by defense costs without the owner or design-builder receiving any financial sum in restitution. The premiums for project-specific policies are often 10 times more expensive than a standalone practice policy.

Since owners and design-builders are not insured under project-specific policies, another concern is that the carrier can negotiate virtually any claim, absent bad faith. Furthermore, if the project-specific policy has a “unified defense approach,” every insured designer must abide by the carrier’s defense, even if only one litigant contests a negligence claim. In many cases, it’s only after years of litigation that owners or design-builders recognize these policy flaws and must settle for pennies on the dollar.

Protective E&O

In contrast, depending on the underwriting criteria and terms and conditions, protective E&O can cost approximately one-third of a project-specific policy, while insuring against a broad range of liabilities that do not fall under the direct supervision of the prime architect. This can include delegated design liability, professional services performed by the contractor or construction manager, specifically retained consultants outside the prime designer, and other negotiated professional activities particular to the project.

The main differentiator between project-specific policies and protective E&O is naming the owner or design-builder as the named insured since they suffer the most from a loss. With a protective E&O policy, 95% of all payments go toward the settlement of owner or design-builder claims, enabling those entities to recover their losses from a policy with limits that are both reserved and protected.

Another advantage of protective E&O is that the indemnity limits are fully reserved to pay for claims. It’s impossible to hide behind indefensible positions because the protective insurer must exercise good faith. With such impetus, the protective carrier is also positioned as a strong advocate of the insured and incentivized with procuring prompt and effective claim settlements.

In short, structuring a project-specific policy incorrectly can create a myriad of potential coverage issues. But many new entrants to the market are repeating past mistakes by insuring nearly every entity under a project-specific policy. In order to address the limitations, some enable cross-party claims, while others still name either the project owner or the design-builders as the insured rather than protecting the best interests of both parties.

Like all insurance, the policy’s value lies in effective claims resolution. It only takes one catastrophic event to ruin a company. Asking questions about an insurance carrier’s claims philosophy and the claims team’s experience is an important part of analysis when choosing these coverages.

Raymond F.H. Bustamante is executive vice president of Berkley Construction Professional, a Berkley Company.

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by Walter J. Adams, Jr.

Strategically preparing for construction professional liability risk

All contractors and subcontractors should be involved in mitigating risk.

Risk is inherent with any commercial building project. From design and specification through construction, there are many moving parts capable of creating any number of problems.

In the past, roles were clearly defined under the design/bid/build project delivery methodology. Responsibilities had a beginning and end. There was little guesswork – if any at all.

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Roswell, Ga. (September 24, 2018) – Raymond F.H. Bustamante, executive vice president at Berkley Construction Professional, a division of Berkley Alliance Managers, a Berkley Company, will offer his perspective on best-in-class professional liability risk profiles at the IRMI Construction Risk Conference to be held from November 4 – 7, 2018 at the Marquis Marriott in Houston, Texas.

During the Tuesday, November 6 presentation titled Benchmark Yourself, Mr. Bustamante will highlight the risks inherent within many of today’s project delivery methods and the strategic value of the latest Contractor’s Professional Liability (CPrL) coverage types. This includes obtaining the most competitive terms through a comparison of best-in-class contractors and exploring the steps necessary for building stable business models, while successfully managing risk through every project phase.

“CPrL insurance is becoming increasingly prevalent in a changing construction marketplace that continues to blur the lines between design and professional services,” says Mr. Bustamante. “This presentation will explore ten of the variables used to evaluate contractor CPrL risks and the methods for helping brokers and their clients secure the best possible insurance coverage.”

Raymond F.H. Bustamante has more than 20 years of experience underwriting design and construction professional liability insurance. He is credited with creating many of the owners and contractor’s protective insurance coverages currently recognized industrywide as the preferred approaches to underwriting project specific design and contractor’s professional liability.

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About Berkley Construction Professional
Berkley Construction Professional specializes in construction professional liability and pollution insurance for construction-related industry exposures. Berkley Construction Professional is a division of Berkley Alliance Managers which is a member company of Berkley, whose rated insurance company members are assigned A+ (Superior) ratings by A.M. Best Company and A+ (Strong) ratings by S&P. For more information please visit

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The construction industry is on the rise again in the U.S. Going into 2018, Dodge Data & Analytics predicted that total U.S. construction starts for the upcoming year would climb 3 percent to $765 billion. This includes a 2 percent increase in commercial building and a 3 percent advance in both the institutional and public works markets.

However, there is a downside. Liability claims are trending upward. When the market bottomed about 10 years ago and new construction all but disappeared, many of the industry’s most experienced workers moved onto other fields leaving a dearth of experienced construction help throughout the nation. In addition, the growing movement toward design/build methodologies merged the boundaries between design and contracting to blur the lines of responsibility when problems occur.

As a result, construction professionals are now working in a construction environment that mandates a more disciplined approach to the design team relationship. Being the prime design consultant or contractor on any job couples benefits with risk. In most instances, prime consultants are not only liable for their own services and the work of their employees, but also the services offered by the subconsultants they retain. This doesn’t even consider the exposures related to construction data breaches, cost overruns, cyber intrusions, the use of drones and related errors and omissions.

First, the negotiation of clear and fair agreements is the best way to make sure that all parties understand the allocation of risk, as well as their roles, responsibilities and rights. These documents should define everything from the scope of services to scheduling and dispute resolution.

Next, every construction professional should make sure the proper risk management tools are in place before the job starts. This includes adequate levels of professional liability, commercial general liability, excess liability, commercial auto and workers comp coverage forms that are commensurate with the project’s scope and services rendered. It is also important to downstream these same obligations to anyone involved with design and construction, especially with respect to the limit of insurance for higher-risk design disciplines and the period for which it is to be maintained.

Furthermore, there must always be a plan of action for dealing with problems. From the very beginning, counselors and their clients need a strategy or plan for handling liability issues. This should extend from the initial reporting and handling of liability issues to the claim’s settlement or, alternatively, winning at trial. While it doesn’t happen often, mistakes can include the mismanagement of files and records, late reporting of exposures and the outright decision to hide mistakes from insurance carriers. Any of these can have disastrous effects, resulting in anything from the loss of court cases to the negation of coverage. A strategic plan that is followed will help eliminate or reduce the impact of mistakes.

Once an incident occurs clients and their defense counsel should be in contact with insurers as soon as practicable. From the very moment an error is identified, every procedure and step should be well documented and recorded for review by both carriers and possibly a court of law. This process can last from six months to years depending on the subsequent project delays, cost overruns, policy type and terms, plaintiff demands, court and jurisdiction.

Plus, mistakes happen. Never lie. Many times, the cover-up can be more damaging and costlier than the underlying liability. In addition, don’t wait to confront a problem. Insurers immediately want to know of any incident that may result in a payment. The proper course of action can be the difference between the quick settlement of claims and years of litigation.

Unfortunately, errors and omissions can happen on the most stringently run jobsites. Today’s design/build processes have created too many overlapping pieces in environments heavily dependent on the latest technologies and enviro-friendly demands. Even small problems can lead to costly delays. That’s why it’s always important to plan ahead with clearly defined risk management strategies that prepare for every contingency. There are far too many examples of projects crippled or even killed due to the lack of planning or ability to resolve claims quickly and equitably.

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Written by Walter J. Adams, Jr. – Vice President & Senior Claims Examiner, Berkley Alliance Managers, a Berkley Company

Walter J. Adams, Jr. has spent nearly two decades handling Architects and Engineers and Contractor’s Professional Liability claims at leading insurance carriers as well as litigating professional, general, environmental and construction liability cases. Berkley Alliance Managers is an alliance of specialty professional liability insurance underwriters and is a member company Berkley, whose insurance company members are rated A+ (Superior), Financial Size Category XV by A.M. Best Company and A+ (Strong) by S&P.

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Streamline the design-build process with a solid strategy for choosing partners


by Andrew Mendelson FAIA
August 8, 2018

Prime design consultants often have a great deal of project control and leverage. Unfortunately, such responsibilities increase the potential for significant risk. This is especially true if errors or omissions committed by subconsultants cause damage to the client or project. Under such circumstances, the prime will most likely be held liable as if they committed the negligent acts themselves.

Given the risks and responsibilities, it’s surprising how many times prime consultants retain subconsultants without thoroughly vetting their skills and backgrounds. Many even fail to hold written contracts with their subs or only move forward with brief agreement letters and/or the subconsultant’s proposal. But consider this: if problems occur and the prime has no contract with the subconsultant, or if the contract is inadequate or ambiguous, the prime could end up paying for the client’s entire loss.

Another problem is that primes often neglect to require insurance—or an adequate amount—from their subs which places their own deductible and policy limits at risk.

As a result, here are eight steps Berkley Design Professional recommends for helping to prepare against issues before they arise, while also protecting against costly and time-consuming delays.


1: Establish a Rigorous Subconsultant Selection Process

The first step is the most important and involves the thorough review of subconsultant work histories, experience and backgrounds. This often includes the development of a checklist that covers:

  • Technical qualifications
  • Experience with specific project types & sizes
  • Staff capability and availability
  • Financial viability
  • Claims and litigation history
  • Internal management structure
  • Leadership and project management ability
  • Quality control and coordination procedures
  • Risk management approach
  • Digital compatibility (especially building information modeling—BIM)
  • References

2: Start the Process Early

Subconsultants should join the design/build process right from the start to become familiar with the owner’s project requirements and expectations. Early engagement promotes commitment and encourages a spirit of collaboration. If possible, determine the sub’s dedication to the project’s staff, scope, schedule and fee before committing to their services.

3: Negotiate Well-Drafted, Coordinated Contracts

Subconsultant contracts are just as important as the prime agreement with clients. They must be consistent and coordinated with the prime agreement. To help avoid discrepancies, use standard form design and construction documents, such as those published by the American Institute of Architects (AIA) and the Engineers Joint Contract Documents Committee (EJCDC), which are carefully integrated, cross-referenced and coordinated with the agreements used on similar projects.

If the client chooses a non-standard agreement, the prime and its attorney should make certain the subconsulting agreement “fits” the project needs and its role is consistent with everyone’s understanding. The following are also several considerations for future agreements:

  • Scope of services—Subconsultant agreements should define the services performed at a basic fee and those considered additional. Be clear about the subconsultant’s responsibility for construction site visits and RFI responses.
  • Schedule—The subconsultant should submit a schedule for services and deliverables that is consistent with owner agreements. This includes a reasonable amount of time to review, coordinate and respond to design progress documents and CA phase submittals.
  • Responsibility for design coordination—The subconsultant should coordinate its own work, along with the prime and other consultants, and be solely responsible for the technical content and coordination of its documents.
  • Right to rely—The right to rely on the accuracy and completeness of services and information furnished by the subconsultant should be specified. Written notice should be supplied by either party who becomes aware of errors, omissions or inconsistencies during the course of the project.
  • Billing and payment—Billing and payment issues are major sources of dispute. Typically, primes require subconsultants to accept a pay-when-paid or pay-if-paid provision to align payment obligations with the prime consultant’s receipt of payment from the owner.
  • Dispute Resolution—Dispute resolution terms, including venue and binding resolution methods, must be clearly stipulated within the prime agreement. There should be confidence in the entire design team working together to defend claims with subconsultants contractually responsible for their design disciplines.
  • Limitation of Liability (LoL)—Never give an LoL subconsultant unless they are included in the prime agreement. If there’s a $5 million claim arising from the sub’s negligence, but the sub is only liable for $500,000 because of the LoL, the prime will be responsible for the balance.
  • Indemnities—Indemnities should be mutual and based on comparative fault. The prime and subconsultant should agree that each party will reimburse the other “to the extent that each party is responsible for such damages, liabilities or costs to the extent caused by such party’s negligent errors, omissions,” or breach of the agreement.
  • Time limit for legal action—This should be consistent with the prime agreement with the owner. Don’t give the owner 5 years to file a claim, while limiting the subconsultant’s liability to 3 years.
  • Ownership of instruments of service—Who will retain copyright and ownership of the subconsultant’s plans and specifications? This is a matter of negotiation between the prime and sub—and should be in alignment with the requirements of the prime agreement.
  • Confidentiality requirements/non-disclosure agreements (NDAs)—NDAs should be consistent with the owner-prime agreement. Owners have become increasingly protective regarding access to their confidential and proprietary information and may require protection by consultants.

4: Insist on Appropriate & Adequate insurance

Contractually require subconsultants to carry adequate insurance, including professional liability, commercial general liability, excess liability, commercial auto and workers’ compensation based on the scope and complexity of the project and the subconsultant’s services. If the client requires a certain specific coverage (for example, cyber liability), then this same requirement should be passed downstream onto the subs.

Ensure that your subconsultants provide current certificates of insurance. Continue to verify that they maintain coverage at least until the project’s statute of limitations runs out. Remember, due to the nature of claims-made insurance, the professional liability policy in force when the claim is made is responsible for handling the claim.

5: Institute a Comprehensive Approach to Project Planning & Design Coordination

A well-developed project plan will orient the entire design team to the known conditions, goals and requirements of the project. Conduct a comprehensive project initiation meeting so the entire design team understands project expectations before it begins.

Before schematic design starts, establish a design coordination plan and institute regular coordination meetings. Develop a BIM execution plan as well as digital data agreements that delineate the roles and responsibilities of each party.

6: Implement Communication & Documentation Protocols

Prepare a written communication plan with ground rules that define what information is communicated to whom, by whom and how often. Be careful to establish a clear protocol if direct lines of communication are allowed between subconsultants and/or between subconsultants, owners and contractors.

While sharing relevant information directly can be efficient, it is critical for the prime consultant to stay fully informed of all client and contractor communications. Encourage subs to document their design processes, particularly for the systems and material selections that impact quality, schedules, compliance and costs.

7: Watch for Signs of Trouble

Watch for warning signs like communication breakdowns or the failure to follow agreed-upon procedures. Take note if the subconsultant doesn’t keep pace with the design team’s schedule for progress deliverables. Be wary if key staff is assigned to other projects. During construction, look for excessive requests for information (RFIs) and/or change orders arising from the sub’s services.

Never wait to address any of these issues. The ability to overcome any problem without costly delays is dependent on the prompt resolution of challenges.

8: Conduct Post-Project Assessments of Your Subconsultants

Carefully assess performance throughout the project. Regularly review responsiveness, communication skills, technical expertise, teamwork, timeliness, quality of service and other project delivery factors. Analyzing performance over a number of projects will enable the prime to determine a subconsultant’s best fit for future work.

The selection of subconsultants should be a rigorous process. But the payoffs—successful projects, repeat clients, fewer disputes, profitable and challenging work, and a well-functioning design team that trusts and values each other—are well worth the time and effort.

Information provided by Berkley Design Professional is for general interest and risk management purposes only and should not be construed as legal advice nor a confirmation of insurance coverage. As laws regarding the use and enforceability of the information contained herein will vary depending upon jurisdiction, the user of the information should consult with an attorney experienced in the laws and regulations of the appropriate jurisdiction for the full legal implications of the information. Practice management recommendations should be carefully reviewed and adapted for the particular project requirements, firm standards and protocols established by the design professional. This material is for general informational purposes only, and while reasonable care has been utilized in compiling this information, no warranty or representation is made as to accuracy or completeness.


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By Raymond F.H. Bustamante
Posted on June 26, 2018

The rules of engagement have changed drastically.

In recent years, the construction industry has moved rapidly from what were clearly defined stand-alone roles of design-bid-build project delivery methods to the faster-paced design/build, public-private partnership (P3) and integrated project delivery (IPD) models. Along with this shift came a blurring of responsibilities for design and construction services and similar uncertainty about ensuing liability that occurs when things go wrong.

“Some argue that Protective coverage delays fair and prompt settlement and adds to finger pointing. That’s a flawed argument. In fact, the opposite is true.”

To better manage the potentially devastating liability exposures, Protective Professional Indemnity (Protective) coverage forms have become increasingly popular. They are better suited to resolve design issues and keep projects on schedule and on budget throughout the construction process, and they commonly provide supplemental coverage for professional errors and omissions (E&O) claims by the insured against its own design professionals. In addition, the Protective policy sits atop all of the insured’s design professionals’ practice E&O policies as a form of excess coverage in the event the design professional’s E&O policy limit has been exhausted or is not sufficient to pay the claim.

But not all Protective programs are created equal, and it is important to understand the carrier’s philosophies concerning management of claims when choosing a policy. While Protective coverage forms have become fairly consistent over the years, it’s the philosophies and procedural differences among the approximately 10 providers offering this coverage that make the difference and add value.

On the plus side, Protective insurance carriers typically work with insureds to resolve claims quickly and avoid protracted litigation. As such, claims can sometimes be settled in months, not years; this, of course, can keep projects moving along without major delays and the costly legal fees and intervention that come with them.

Most Protective claims are made during the construction phase after the discovery of design errors by the contactor. Because the issues involved are usually technical in nature, engaging the services of an experienced risk and/or forensic engineering expert to investigate and determine the cause and extent of the problems and potential exposures is a prudent first step in the resolution process.

Once the full exposure is determined, developing a plan to keep the project on schedule and budget is critical. A Protective carrier that has a proactive claims approach will take steps—including, potentially, paying a portion of the limits of liability—to fix the problem without further delay. This contrasts with a Protective carrier that waits until the underlying liability for design errors is determined—a process that can take months or years and does not contribute to keeping the project on schedule or within budget.

With litigation of damages and proactive claims settlement addressed in the policy form, a Protective carrier can help validate and substantiate a claim for design liability and bring a matter to a quick and positive resolution. Experience shows that such claims are less likely to be litigated and are settled many years in advance of litigation that’s common with design liability; at the same time, the project stays on schedule and on budget.

Some argue that Protective coverage delays fair and prompt settlement and adds to finger pointing. That’s a flawed argument. In fact, the opposite is true. A Protective carrier is best able to work to resolve issues quickly and do away with finger pointing by focusing on key issues, while keeping projects moving and avoiding more costly claims down the road. The goal is to substantiate what is covered and negotiate in good faith without self-interest or a desire to pad claims.

Protective insurance delivers benefits to contractors/owners and design professionals by helping them salvage and resume their relationship after errors or omissions are uncovered and claims are settled. The key is asking for help. Many problems can be contained or extinguished altogether by an early and proactive response. Such coverages or services can make all the difference between speedy recovery and lost profits and reputations.

The author:
Raymond F.H. Bustamante is executive vice president of Berkley Construction Professional, a Berkley Company. W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States. Bustamante can be reached at [email protected] or (973) 600-0926.

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By Raymond F.H. Bustamante
Posted on August 29, 2017

The commercial construction industry entered 2017 building on a steady stream of growth over the past years. Earlier this year, ConstructConnect predicted a 6.3 percent increase in total construction for 2017 with another 7.2 percent increase in spending for 2018.

Most recently, these expectations were amended slightly when ConstructConnect announced U.S. construction starts were expected to grow by 4.5 percent in 2017 and about 6 percent in 2018. In comparison, the AIA Consensus Construction Forecast projected 3.5 to 4.0 percent of growth for the remainder of 2017 and 2018.

These changes were based on several factors ranging from a slowing commercial/industrial marketplace to the shortage of qualified building professionals. Unfortunately, the recent recession had many dire effects including the loss of approximately two million skilled laborers, who left the industry to find work elsewhere and have yet to return. This trend has also combined with an aging workforce and the entry of fewer young tradesmen into the field to replenish the project pool for seasoned workers ranging from electricians, plumbers and welders to masons, roofers and carpenters.

The commercial construction industry entered 2017 building on a steady stream of growth over the past years. Earlier this year, ConstructConnect predicted a 6.3 percent increase in total construction for 2017 with another 7.2 percent increase in spending for 2018.

Most recently, these expectations were amended slightly when ConstructConnect announced U.S. construction starts were expected to grow by 4.5 percent in 2017 and about 6 percent in 2018. In comparison, the AIA Consensus Construction Forecast projected 3.5 to 4.0 percent of growth for the remainder of 2017 and 2018.

These changes were based on several factors ranging from a slowing commercial/industrial marketplace to the shortage of qualified building professionals. Unfortunately, the recent recession had many dire effects including the loss of approximately two million skilled laborers, who left the industry to find work elsewhere and have yet to return. This trend has also combined with an aging workforce and the entry of fewer young tradesmen into the field to replenish the project pool for seasoned workers ranging from electricians, plumbers and welders to masons, roofers and carpenters.

Few general contractors can successfully complete projects on time and within budget without the help of reliable and well-schooled subcontractors. The problem is finding reliable help. Although price is always a consideration, it should never be the main requisite for hiring subcontracting support. Always be wary of the lowest bid. Sometimes cheap means little else, especially when it accompanies subpar skill sets and a lack of precision and timeliness.

Another challenge involves the influence of owners, who have been known to “strongly suggest” the hiring of associates, former colleagues and even friends and relatives. Due diligence should never be forsaken or undetermined to win a bid or gain favor. The ultimate decision for subcontracting help should be left to those with the responsibility for the final outcome unless the contract is otherwise worded. Never dismiss the costliness of errors and omissions. They can make all the difference between profitability and years of delays and litigation.


It is also important to take a good, hard look at the talent and experience of subcontractors before the work begins. This is a highly competitive era, where far too many professionals are bidding on projects beyond their expertise. Before taking on extra help, it is imperative to check references and learn more about the work they perform. Areas of concern should be cited and addressed. The jobsite is no place for surprises.

In addition, subcontracting is a business like any other. Integrity in operations can also say a lot about dependability and loyalty. Are they solvent financially or involved in any form of litigation? Are they positioned to become a future competitor? What is their workload? Will they see a project through to its completion or disappear somewhere before its end? Even if they have worked with a contractor in the past, are they the same organization capable of delivering on the general contractor’s behalf?

On the contractual side, are they willing to live up to the contractual undertakings agreed to by the firm? Few situations are worse than the special dispensation of services that do not match obligations.

Furthermore, make sure the proper insurance is in place and adequately worded to meet the needs of the job. Risk management is not a luxury. It is a necessity. Contractors Professional Liability (CPrL) can be written with a broadened and/or clarified definition of covered professional services to insure against the errors or omissions of subcontractors. This includes Contractors Protective Indemnity (CPI) coverage terms, which is designed to protect general contractors from the damages caused by subcontracted design and construction professionals as well as the damages that sit in excess of the design professional’s own liability insurance policy limits.

The same holds true for owners who would like to expand their coverages with Protective Professional Indemnity, Protective Contractor’s Pollution and Third-Party Claim Defense and Indemnity terms to cover the challenges caused by vendors hired by the contracted general contractor.

Going forward, never underestimate the potential harm and disruptions posed by under-skilled, unreliable and under-insured subcontracting help. A general contractor’s reputation and bottom line can be at risk with each job. Owners have the right to expect quality and diligence along with the service clearly outlined in mutually agreed upon contracts. So, always remember that reputation and profit margin are on the line with each new hiring decision.

Raymond F.H. Bustamante is Executive Vice President of Berkley Construction Professional, a Berkley Company. W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States. Bustamante can be reached at 973-600-0926.

This article was originally published online in Construction Executive Risk Management.


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By Raymond F.H. Bustamante
Contractors’ professional liability (CPL) and pollution policies continue to grow in popularity as differing project delivery methods blur the lines between design and professional services in the changing construction industry.

While the majority of the insurance forms most commonly purchased by contractors — commercial general liability or workers’ compensation — have been “standardized” by the Insurance Services Office Inc. (ISO), it’s important to note that all CPL policies are custom drafted and self-regulated with varying terms, conditions and approaches to claims handling.

What to know about non-ISO regulated coverages for contractors' professional liabilityCPL coverage is ideal for insuring against the economic damages associated with what may be perceived as a mental error in the capacity of a professional, not the actual physical activities resulting in a bodily injury or property damage claim. This involves the damages arising out of the acts, errors and omissions of professional services performed by or on behalf of any construction firm; be it a general contractor, de­sign-builder, construction manager (at-risk or agency) or specialty subcontractor. In addition, pollution cover is also often included to overcome commercial general liability policy exclusions.

Written on a “claims made and reported” basis, meaning a claim must be made against the insured and reported to the insurance company in the same policy period, CPL policies clearly state that the “insured” must not have had knowledge of the claim prior to the beginning of the policy period. Some CPL policies are further delineated with references that specify those individuals required to have claim knowledge, while others are even more restrictive through “should have known” language. Both distinctions, if not seriously and carefully considered at the time the claims are filed could have a major impact on coverage, possibly even resulting in its declination.

The definition of “professional services” also varies greatly among CPL policies. There are services that a contractor performs that can be considered “professional services,” but are not performed by licensed professionals. For instance, the coverage could then be limited under the policy if these stipulated “professional services” are bound exclusively to the performance of “licensed or legally qualified” individuals. Some policies may even be further restricted by construction management definitions cited within the contract, or worse, when the actual construction work is not undertaken or not performed according to specific means and methods, even if the professionals are not insured elsewhere.Other policies have even been known to restrict the coverage for protective claims to entities either directly contracted for the work or professionally licensed to perform architectural, engineering and land surveying services.

Pollution’s coverage gaps

In addition, pollution coverage is another important component of CPL policies. Unfortunately, many professionals only focus on the definition of “pollutants,” while not paying proper attention to “covered activities” definitions. Consequently, there could be significant coverage gaps if the “covered activities” do not encompass all the contractor’s work or the pollution liability connected with the performance of these “professional services.”

As a result, protective coverage should be a standard in every CPL policy. It is a first-party indemnity insurance, which is essential for insuring against the design/build damages incurred from the negligent acts, errors and/or omissions of the subcontracted design and construction firms providing delegated professional services in excess of their individual insurance policies.

For example, in design/build projects, contractors are most likely to internalize liabilities and use the protective coverage to seek first-party damages. With the protective, the claims handling approach is also important because some insurance companies will take the position that all underlying policies, even unrelated to professional liability, must be exhausted. Another key is the need to include some form of “proactive approach” to the claims resolution process. With this condition, the carrier is forced to affect a settlement once a claim is validated and advance the funds needed to correct flaws and advance the project work. This is essential when project delays create overrun costs if not immediately remedied or the underlying carrier contests the claim without merit.

Equally important, a CPL policy should have some kind of mitigation of damage or rectification coverage. If the carrier internally validates portions or all of the claim during the course of construction or litigation, money can be advanced on an ongoing basis to help the contractor bring the project, as best possible, to completion on time and within budget. Ultimately, this amount would be recovered from the responsible parties, but the primary goal is to make sure the work continues.

Another element to consider when purchasing a CPL policy are the exclusions. Some policies contain “cost overruns” and “project delays” exclusions — including the failure to provide services on time — which are primary drivers for business losses and can have a material effect on coverage. In addition, cyber, patent or copyright infringement exclusions also impact coverage as technology continues to proliferate in the construction industry.

Given the wide differences in approach to drafting coverage provided by CPL policies in the current marketplace, a contractor needs to be extremely cautious when choosing the insurance carrier best-suited to protect their company from liability and catastrophic losses. Subsequently, it is always prudent to carefully discuss the appropriate options with brokers and reach out to knowledgeable, experienced sources when questions arise.

Raymond F.H. Bustamante is executive vice president of Berkley Construction Professional Underwriters, a W. R. Berkley Company. Bustamante can be reached at 973-600-0926 or [email protected]. This article was originally published in Property Casualty 360.