As firms expand to practice internationally, they need to understand both the contractual and statutory demands related to insurance coverage for a specific project and consult with their legal counsel and insurance broker to determine if a U.S. practice policy will comply with the requirements. The greatest risk in providing services on an international project is not getting paid; violating contractual or statutory constraints related to insurance gives the client an easy way to avoid payment. And it could subject the firm to civil or even criminal sanctions.
On any project outside of the U.S. a firm needs to know whether the contract and insurance requirements will be construed under U.S. law. This might be the case if the foreign project is for a U.S. client. Even if the local statutory requirements or the contract allow the application of U.S. law, the firm needs to know if its insurance policy provides “worldwide coverage” and if the defense of the firm will be applicable for claims brought in non-U.S. jurisdictions. In addition, firms need to know if the policy covers only “licensed” professional services or creates other restrictions on the scope of services; most of the services provided by U.S. firms on international projects are not based on U.S. licensing laws, so a broad grant of coverage is needed. The CNA policy provided by Schinnerer facilitates international practice.
Firms might face greater compliance issues if the local law governs the contract or if the laws of the jurisdiction require special forms of insurance coverage. Many prosperous areas using U.S. design expertise have legal systems in which the concept of negligence is not used to establish liability. Liability is based on statutory law. So if a professional liability policy only provides coverage for “negligent acts, errors, or omissions,” the policy might not respond to a claim based on statutory liability. Even if the prime has a CNA policy, which is one of the few to automatically cover statutory liability in those jurisdictions where a negligence standard is not used, subconsultants might have policies that will not be triggered by a statutory claim, thus leaving the prime to take responsibility for subs that are basically uninsured.
Schinnerer clients can learn more about dealing with insurance requirements on foreign projects by accessing the Management Advisory titled “Risk Management on International Projects.”