Although design errors or inadequacies are not the source of most professional liability insurance claims, they often lead to the erosion of client confidence in the design team and usually result in claims during the construction phase or soon thereafter. This happens because traditional professional liability insurance policies do not provide coverage until a demand for money or services is made based on an allegation of negligent performance of professional services. However, the new Victor and CNA professional liability insurance policy now offers a solution to help insureds mitigate claims and rectify problems before a claim is made through our innovative rectification coverage.
According to Victor and CNA claims statistics, about 33% of claims against design firms occur before a project is substantially complete. If technical design errors are identified early, they are usually resolved quickly and often at a minimal cost of time and money. When a problem happens during construction, the construction entity that discovers the problem usually brings a contractual claim for delays and extras against the project owner, who then involves the design firm in the claim’s resolution.
From a risk mitigation perspective, it makes sense to solve problems created by design errors and inadequacies as soon as they are identified. The Victor and CNA program expedites the early resolution of a design problem without waiting for a claim to be brought against the insured design firm. This is part of the rectification coverage provided in the policy.
While rectification coverage is vital to design firms that take the lead on design-build projects by limiting the risk that a design error will lead to a major financial loss, rectification coverage is important with other project delivery methods when the design firm is not responsible for construction. The policy sets up a system for the early involvement of a CNA claims specialist when an insured discovers a design deficiency during the construction phase. This reduces the impact of a design problem, supports the client’s goal of getting a capital asset built as efficiently as possible, and diminishes the likelihood that the construction contractor will demand additional time or money through a claim that involves the design firm.
Some of the features of the rectification coverage include the following:
- provides mitigation of loss payments for design defects that could result in a claim;
- covers reasonable and necessary fees, costs, and expenses incurred by the design firm because of a design defect caused by professional services in any part of the construction or engineering works for any project upon which the policyholder is responsible for design; and
- covers design services, but not claims related to actual or alleged negligence in the review of shop drawings, issuance of change orders, observation of construction, or review of pay applications because those allegations would be subject to the normal negligence coverage of the policy.
The coverage excludes overhead, mark-up, profit, or any fee, and charges, costs, or expenses incurred by the policyholder for materials supplied or services performed, and it is subject to the policyholder’s deductible obligation.
The rectification provision in the Victor and CNA policy was first introduced in 2014 for firms taking the lead on design-build projects. This expanded coverage now equips policyholders with another tool to increase their control over their professional liability exposure in providing design services on projects through any project delivery system.
With the rectification coverage, policyholders not only have greater confidence that they will be able to manage their exposures, but they can cite the expanded coverage when educating a client on the firm’s ability to provide a timely and responsive solution to the client’s needs.