Professional Liability Case Scenarios
Understanding different types of insurance claims and how they relate to various insurance products can be helpful. Being able to identify possible exposures or gaps in coverage can be useful information when assessing coverage needs.
The information below is a general summary of the cited claim. Please refer to the citation itself for a complete copy of the cited claim. Additionally, the Claims Summary is not an affirmative statement as to the availability of insurance coverage for a particular Client or insured. Please refer to the actual terms of your policy or quotation regarding definitive terms and conditions of coverage.
CLAIMS SUMMARY 1
A construction management service provider was insured under three separate insurance policies for its work on a freeway project. The provider had secured a CGL policy and a commercial excess liability policy with one carrier and an Architects, Engineers, and Environmental Services Professional Liability policy with another carrier. Following a construction site accident that injured one of the contractor’s employees, the construction management services provider was joined in a subsequent suit because of its instructions on how to clean out a cement trough. The CGL/excess insurer provided settlement costs in response, and, in turn, sought recovery of half of the defense costs/fees ($68,546.53) and reimbursement and indemnification for the entire settlement amount ($1.3M) from the professional services insurer. The CGL/excess insurer argued that the professional services insurer was responsible for these amounts because the claim arose out of the professional services provided by the construction management services firm, which were covered under the policy issued by that insurer. In response, the professional services insurer claimed that the accident did not arise out of its insured professional services and that its actual construction policy exclusion would prevent such coverage. In addition, the professional services insurer emphasized that its policy coverage was only supplemental. The contract management services agreement did not encompass advising workers on how to fix any workmanship errors. The actions of the construction management services firm were not classified as professional services under the professional services liability policy. In addition, such actions would not be excluded under the professional services exclusions in the CGL and excess policies. The CGL/excess insurer was awarded $68,546.53 in equitable indemnification for the defense costs it had previously paid. At the time, the actions of the construction management services firm were potentially covered under the professional policy when settlement was achieved. View Citation >
DID YOU KNOW: A definition of a particular service can impact coverage. The case above focused on what did and did not constitute professional services when construction management services were provided. An A&E Professional Liability policy can include coverage for the professionals and their staff on both a practice and project-specific basis.
CLAIMS SUMMARY 1
Waterproofing a property can generate mold growth, and in such instances, an owner can pursue property damage claims against various parties, including the waterproofing company. When initial remediation efforts prove ineffective, the costs can be significant. A waterproofing company was engaged to perform waterproofing and joint sealing in the construction of a nursing home and healthcare facility in Texas. Less than a year after construction was completed, the facility owner identified mold behind a wall covering and other areas throughout the facility. Initial remediation efforts proved ineffective, and the facility owner was forced to move its residents to another facility. The nursing home owner brought property damage claims against several defendants, including the waterproofing company. They alleged that the waterproofing company’s negligence led to water intrusion and mold, and also sought to recover business losses after being forced to close the facility due to mold. View Citation >
DID YOU KNOW: Failure to adequately perform waterproofing and joint sealing during a construction project can lead to mold development, which is a pollution condition. Frequently, CGL policies contain pollution exclusions, preventing such coverage under a stand-alone CGL policy. A CPL policy can provide coverage encompassing bodily injury, property damages, defense, and cleanup resulting from a pollution condition connected to the contracting operations performed by or on behalf of the insured.
CLAIMS SUMMARY 1
A company was hired to perform associated design work on a viaduct project for the Department of Transportation. In turn, this company subcontracted with an engineering and land surveying company that then subcontracted with a drilling company. A subcontractor involved in the viaduct project failed to properly identify and describe a well during the engineering/land surveying work. Because of this lack of identification and proper description of one of the test wells, a tunnel boring machine struck the well, resulting in damage. The owner of the boring machine then sued the company in charge of performing the associated design work for the following: professional negligence, negligent misrepresentation, and indemnification. The company in charge of performing the design work services had secured a CGL policy, and a professional liability exclusion was contained within that CGL policy that distinguished between construction contractor and environmental services. Ultimately, the Court distinguished between construction contractor services and professional services, finding that the design services company was not acting in the capacity of a construction contractor, but rather in that of a professional engineering capacity; the drilling that resulted in damage was only incidental to the professional work that they were hired to perform. The CGL insurer’s motion for summary judgment was granted, and the Court also emphasized the lack of a construction contract in place in support of its position. View Citation >
DID YOU KNOW: CPPI policies typically encompass three forms of coverage: professional liability, protective indemnity, and rectification coverage. There can be great variance across the industry, and just one area of protection can include faulty workmanship coverage for qualifying subcontractors. Oftentimes, multiple subcontractors are involved in just one project as seen here.
CLAIMS SUMMARY 1
A general contractor hired a design and construction firm to complete a roadway project in the capacity of a subcontractor; the focus of this part of the project was the completion of the highway widening portion and the design and construction of a mechanically stabilized earth (“MSE”) wall system. When the project was near completion, it was determined that the subcontractor’s wall system was out of engineering tolerance due to settlement and shifting. The turnpike authority demanded that the defect be cured, even threatening to impose delay damages of $10,000 per day if the construction deadline was not met. The design and construction services subcontractor undertook repairing the MSE wall system, at an additional cost of over $253,000. It submitted the claim to its contractor’s professional policy insurer, which did not include rectification coverage. The insurer denied coverage, citing the policy language that covers damages the insured becomes “legally obligated” to pay. Here, the turnpike authority had not brought any formal claims against the design and construction services subcontractor, nor had it obtained a judgment. Instead, the subcontractor had voluntarily remediated its wall system at its own expense as a means to avoid further delay damages. The Court found that the professional liability insurer and the design and construction firm hired as the subcontractor were not covered for these rectification expenses. View Citation >
DID YOU KNOW: A CPP policy can provide for first-party rectification and mitigation coverage. However, it’s important to examine one’s policy because not all forms of coverage include rectification expenses and there are oftentimes prerequisites to securing such compensation.
CLAIMS SUMMARY 2
The general contractor for a 196-unit, $15 million apartment complex development hired a subcontractor to design and install a fire suppression and protection system for the project, which later proved to be faulty and required replacement. The general contractor was named as an Additional insured on a subcontractor’s CGL policy, but the coverage only extended to third-party claims for bodily injury or property damage. Since the general contractor decided to rectify the damage on its own without the subcontractor initiating suit, the general contractor was not eligible for coverage as a third-party beneficiary. The general contractor had removed the previously installed drywall and installed a new system at a total cost in excess of $614,000. The subcontractor’s CGL policy did include a professional liability coverage part, but the general contractor’s additional insured status did not extend to professional coverage. Ultimately, the Court denied coverage, and the general contractor was not covered for its losses in replacing the defective fire suppression and protection system. View Citation >
DID YOU KNOW: A CPP policy can include protective professional indemnity coverage.
CLAIMS SUMMARY 1
A condominium project involving the construction of 595 condominium units resulted in multiple construction defects throughout the project. Following construction completion, defects including water infiltration, structural cracks, inadequate fire separations, and inadequate ventilation, were identified. The homeowner’s association brought claims against several parties, including the property owner, developer, and architectural firms. The owner/developer had directly hired the architectural firms, not the homeowners. The architectural firms sought to have the claims dismissed, arguing that because they had not been hired by the ultimate homeowners, they did not owe them a professional duty of care. They also claimed that they had not been directly involved in the construction/implementation of their design and that changes may have been made to their original design. While the architectural firm was ultimately found liable for the construction defects, multiple parties were brought into the litigation, including the original property owner and development company. If the architect’s professional liability coverage was not available or had insufficient limits, there may have been exposure for the property owner/developer/general contractor. View Citation >
DID YOU KNOW: OPPI can offer project-dedicated professional liability insurance to protect a project owner from losses arising out of the architect’s or engineer’s (A/E’s) negligence. As was the case here, multiple entities were involved, including the property owner, developer, architectural firms, and even a homeowner’s association managing the use and ownership of the condominium units. An OPPI policy sits in excess of an architect’s or engineer’s primary coverage. Design professionals may also be involved in similar projects. In addition to OPPI, a Project-Specific Professional Liability (“PSPL”) policy can provide professional liability coverage for the design team led by the primary design professional.
For more information on how a claim may relate to your specific risk, connect with a member of our team.
