Design-build risks
Today, many general contractors offer design-build project delivery as part of an expanding menu of services. While this method of project delivery offers many benefits, general contractors need to ensure they are properly protected.
Factors arising from both the contract structure and insurance coverages (or lack there of) could put the general contractor in danger of facing a lawsuit for damages and for incurring potentially significant defense costs for subconsultant error.
These factors include:
Single-point responsibility
Design-build contracts assign single-point responsibility to the general contractor. That means they are legally liable for the project’s design and its construction. A claim could be made against them, even if the subconsultant is at fault.
Additional insured status
Contractors can’t be named as additional insureds on an architect/engineer/design consultant’s professional liability policy.
Project owner claims
No contractual relationship exists between the project owner and design subconsultant, so the project owner may make a claim against the general contractor instead.
Professional Liability coverage
General contractors offering design-build services should always carry professional liability insurance. And, as a best practice, they should require their design subconsultants to carry it also. Otherwise, they could be held liable for design subconsultant errors.
When the design subconsultant carries professional liability insurance, the general contractor has a source of recovery for claims made against them. Here’s how. After a general contractor’s professional liability covers a claim, they can look to the subconsultant to recover damages and defense costs incurred due to their negligent performance…but only if the design subconsultant has professional liability insurance.
Many insurers will issue a policy to general contractors only if the general contractors require all their subconsultants to carry professional liability. As incentive, some carriers offer premium credits or use a lower rating basis to general contractors who work only with properly insured design subconsultants.
To learn more, email design.us@victorinsurance.com or connect with your business development contact.