Judy Greenwald
November 13, 2011 – 6:00am
New approaches that have emerged in construction that have led to an increased demand for contractors’ professional liability insurance include integrated project delivery and building information modeling, although both may present underwriting challenges for insurers.
Observers say the idea behind IPD is that all the team members involved in a construction project—including contractors, architects, engineers and subcontractors—work together collaboratively. The parties indemnify one another, agreeing to hold one another harmless for errors made.
With integrated project delivery, the parties “agree to put the project first,” said Jeffrey M. Slivka, executive vp at Bordentown, N.J.-based New Day Underwriting Managers L.L.C. It is a delivery method, but it is also a change in the mindset of the team involved in the design and construction process, he said.
The approach has had some success in recent years, with projects being completed on time—or even ahead of schedule—and on budget, with reduced errors and reduced risk, said George Pigault, vp with Liberty International Underwriters, a unit of Liberty Mutual Group Inc., in New York. There is a greater degree of risk management on the front end, “thereby allowing projects to go smoother.”
But on the other hand, the blurring of responsibilities “creates new risks and new exposures for contractors.”
“In terms of what can go wrong, you can still have issues of delay, you can still have issues of design defect and construction defect that can take place,” said Mr. Pigault.
Jeffrey Coe, Atlanta-based national practice leader for Marsh USA Inc.’s design industry group, said that because it is a shared risk, “there’s no real basis to establish negligence, which is the trigger for all of these professional liability policies. It’s really been a challenge” to underwrite this business, he said.
Keith Jurss, Chicago-based senior vp of professional liability for the national construction practice of Willis North America, said the industry is going to have to “figure out how we make the insurance products work with IPD, because the owners and contractors and everybody are driving toward that.”
Building information modeling involves computer-developed 3-D models of construction projects. These can identify problems that may arise from the design before the project is built. Contractors may be brought in for their input into these models, which increases their possible liability.
For Richard Hartman, vp, architects and engineers professional liability for Arch Insurance Group Inc. in New York, the question is if a contractor has input into the model, “are they acting as a designer or are they acting as contractor?” Those questions “really haven’t yet been answered,” he said.
via Collaborative methods increase exposure | Business Insurance.