Risk Insights | Buying design-build errors and omissions in Canada
One-stop shopping. That’s what your clients want when they contract your firm to deliver a design-build construction project. Whether the project is a renovation or a ground-breaking new build, the design-builder method means that your contracting company is the lead for all elements of design as well as building.
A few reasons why this type of construction project management is a popular choice include:
- “Design-Build saves time and money for the owner.
- Designers often make cost decisions that are outside their area of expertise.
- A knowledgeable contractor with extensive design experience, including experience with certain project types, is the best choice for a designer.
- Design-Build allows owners to avoid being placed directly between the Architect/Engineer and the contractor, dramatically reducing liability and costs.”1
As much as design-build may be the ideal, seamless solution for your clients, these types of projects mean that your construction and/or contracting firm takes on additional risks. Your success as a design-build contractor is ultimately tied to your ability to meet all project requirements as well as deliver on time and within budget.
Unfortunately, despite your best efforts to deliver flawless design, resources, materials, logistics as well as build management services, there are many hidden risk exposures in design-build projects that can trip things up.
Design-build 101 | Don’t let these common liability risks trip you up
When you take on any type of construction project, you know there will be risk. And if your firm wants to secure a design-build project, subcontracting a licensed design professional may seem like an ideal way to manage any potential design related exposures. However, as the design-build contractor, you still need dedicated E&O liability coverage for your construction firm.
In fact, the International Risk Management (IRMI) notes that, “contractors should not rely exclusively on hold harmless or other contract provisions to protect them from design liability for the following reasons:
- The hold harmless provision could be held to be unenforceable. [There may be] rules regarding the shifting of liability for one’s own negligence to another party, and failure to conform to these rules may invalidate the provision.
- The design firm may not be in business when the claim is filed. Since professional liability insurance is written on a claims-made basis, it is likely that no coverage would exist at that time.
- Architects and engineers’ errors and omissions insurance typically does not cover contractual liability, such as that assumed in a hold harmless provision, unless such liability would have attached in the absence of a contract or agreement. Rather, coverage under these policies is limited to damages that are the result of ‘professional negligence,’ which is a much different standard of care than the design-builder typically provides to the project owner. Even if the policy will respond, most design firms carry relatively low limits of insurance and have limited tangible assets that could be used to satisfy indemnity obligations if the insurance proves inadequate.
Because the design-builder’s obligation to the project owner is not relieved by the inability to collect for design damages from the design sub-consultant, design-build contractors should purchase their own professional liability coverage for their design-build liabilities.”2
Well built. How design-build E&O responds to lawsuits…
The good news is that design-build errors and omissions liability is, quite literally, designed from the ground up to enhance your construction firm business owner’s policy.
Here’s the protection your firm can expect with errors and omissions coverage:
- E&O will safeguard against catastrophic loss in the event of a lawsuit due to a negligent act, error or omission in the course of your offering design-build services to a third party for compensation.
- In addition to claims of error, omission, or negligence, E and O can also protect against slander, libel and breach of contract.
Risk Management 101 | Ways to manage common design-build exposures
It is inevitable that your construction firm will face a variety of professional liability risks when delivering any design-build project. Thankfully, many common construction project risks can be anticipated as well as managed.
The Insurance Bureau of Canada (IBC) provides useful tips that can help mitigate many common professional liability risks. A few ways you can proactively address some typical worksite risks include:
a) “Use a client intake form. A formal approach to establishing a relationship between a service provider and client may help prevent conflicts of interest. Questions to consider include:
- What are the client’s instructions?
- Are the new client’s goals reasonable and attainable?
- What is the fee or billing structure?
- Is your business adequately staffed to handle the project?
- Did any potential red flags come up during the interview and information gathering stages?
b) Review any available information about previous suppliers who have worked with the potential client. Things to consider include:
- Does the client have a reputation for managing successful long-term relationships with vendors?
- What reasons does the client give for changing suppliers?
c) Collect and review as much information as possible when you are evaluating a potential client. In a working agreement or contract, you may wish to include elements such as:
- Proper identification
- Scope of work
- Fee structure
- The responsibilities expected of your organization as well as those expected from your client.”3
Why E&O is so important for Canadian design-builders
From the ground up, design-build errors and omissions liability insurance is built to provide protection for individuals who give advice, make educated recommendations, design solutions, and/or represent the needs of others.
E&O is designed to cover large legal defence costs that are incurred trying to prove liability or innocence as well as the final judgment if your business does not win the lawsuit.
Get a quote | Get your design-build E&O ALIGNED now!
Canadian businesses know that our experienced ALIGNED insurance brokers have deep and thorough understanding of today’s most common business risks and exposures. Our team is exclusively focused on meeting the specialized needs of Canadian businesses only as well as delivering the best possible insurance experience.
This is why we make it easier to get design-builder’s errors and omissions covered.
You can expect one of our experienced commercial insurance brokers to contact you to discuss your design-build projects. We’ll work with you to get you aligned with the best errors and omissions coverage you need to protect your commercial operations.
We invite you to work with us to get all of your design-build insurance needs aligned today.