RISK TRANSFER FOR DESIGN-BUILD TEAMS

Transcription

1 WILLIS CONSTRUCTION PRACTICE I-BEAM Jauary RISK TRANSFER FOR DESIGN-BUILD TEAMS Desig-builD work is icreasig each quarter. cosequetly, we are fieldig more iquiries from cliets regardig the structurig of ad risk trasfer optios for Desig-builD teams. For most cliets, competig for a desig-build project requires the formatio of a team that brigs together the ecessary architectural ad egieerig desig experiece ad the costructio expertise ad capability for the project type. I choosig project parters, careful cosideratio must be give, ot just to familiarity with the project type, but also to the depth of the team members experiece with desig-build projects, to their fiacial footig ad to the cultural fit betwee orgaizatios. The actual legal structurig of the team may be achieved i oe of several ways, with oe party (usually the cotractor) cotractually primig or leadig the desig-build team. May such teams are iformal ad rely solely o some form of teamig agreemet, whereas others may be formally structured, as either a joitveture, a limited liability corporatio (LLC), or as a corporatio. Desig-build team or joit-veture parters may seek to allocate risk betwee oe aother by meas of their teamig agreemet s idemificatio ad isurace provisios. I the evet of a serious desig defect, however, such allocatios may ot be sufficiet to obviate each joit-veture parter s cotractual ad legal obligatios to the project ower. Therefore, the direct ad vicarious liabilities for the performace of desig services that ca arise i a desig-build team or joit veture demad very careful evaluatio ad appropriate allocatio ad trasfer of risk. As the prime i cotractor-led desig-build, the cotractor is legally liable to the project ower for both the desig ad the costructio of the project. Although the cotractor may be delegatig resposibility for desig services to various subcosultats (who may be providig the cotractor with idemificatio), as prime, the cotractor remais resposible to the ower for the cosequeces of defects ad deficiecies i the desig documets. Desig-build teams ad joit vetures have oly a fiite umber of ways to try to limit their exposure i the desig-build agreemet with the ower. Makig use of a egligece-based stadard of care Limitatios or exclusios for cosequetial damages Limitatio of liability Rights of reliace (i the evet that they are relyig o ower-furished iformatio or desig documets)

2 COVERAGE FOR DESIGN LIABILITY PROFESSIONAL LIABILITY POLICIES Cotractor s Professioal A/E Professioal Liability Cotractor s Professioal (edorsed for a sigle project) Professioal Owers Protective Professioal Idemity OTHER CONTRACTOR POLICIES Provides coverage for failure to perform professioal services, either directly or by etities for whom the isured is legally liable. Note the defiitio of professioal services to determie the extet to which professioal services withi costructio meas ad methods are addressed Note the iclusio of JV coverage (geerally limited to isureds participatio i JV oly) Provides coverage for failure to perform professioal services, either directly or by etities for whom the isured is legally liable. Note the defiitio of professioal services to determie the extet to which professioal services withi costructio meas ad methods are excluded Note the iclusio of JV coverage (geerally limited to isureds participatio i JV oly) Cotractor caot be give additioal isured status uder the policy Provides coverage for failure to perform professioal services, either directly by the desig-builder or by etities for whom the isured is legally liable, o a specific-project. Desig cosultats will ot be additioal isureds Will be procured by the desig-builder Provides coverage for failure to perform desig services by the project desig team o a specific-project It is icreasigly commo o desig-build projects that the desig-builder is amed as a isured uder the policy ad is subject to the isured vs. isured exclusio Professioal services withi costructio meas ad methods will be excluded Isureds will agree to joit defese May be procured by the ower as part of a OCIP, or by the A/E or desigbuilder directly (terms ad coditios may vary) Ower may be a idemified party Provides ower with idemificatio excess of the professioal liability limits available through the aual A/E professioal liability policies of the desig team ivolved i a project. Typically ot used i desig-build CGL Builders Risk Professioal services exclusio typical CG 2279/2280 edorsemets ca provide bodily ijury ad property damage coverage ONLY Professioal services exclusio typical Cost of makig good errors i desig or defects i workmaship are geerally excluded, but esuig losses are covered 2 Willis North America 1/10

3 I the followig claim examples, we cosider how the various professioal liability policies refereced i the table above might respod. CLAIM SITUATIONS THIRD PARTY PROJECT OWNER 1 CONTRACTOR-LED DESIGN-BUILDER DESIGN-BUILDER DESIGN PROFESSIONAL CONSULTANT(S) 2 3 I Claim Situatio 1, a urelated third party makes a demad of the project ower allegig ecoomic loss, bodily ijury or property damage arisig from the egliget acts, errors or omissios i the professioal services provided to the ower by the desig-builder or its cosultats. Potetial third parties iclude adjacet property owers, cotractors active o adjacet projects, members of the geeral public, ad govermetal fudig or regulatory agecies. Cotractor s Professioal A/E Professioal Liability The ower would ot be covered uder this policy for such claims. The ower would have to rely o ay cotractual idemificatios ad other provisios for protectio, ad teder a demad agaist the desig-builder (see Claim Situatio 2 below). The ower would ot be covered uder this policy for such claims ad would have to rely o ay cotractual idemificatios ad other provisios of the desigbuild agreemet for protectio, tederig a demad agaist the desig-builder (see Claim Situatio 2 below). I most jurisdictios, privity of cotract will prevet the ower makig a demad directly agaist the desig-builder desig professioal cosultat(s). Project-Specific Cotractor s Professioal Professioal The ower would ot be covered uder this policy for such claims ad would have to rely o ay cotractual idemificatios ad other provisios for protectio, ad teder a demad agaist the desig-builder (see Claim Situatio 2 below). The ower may be able to obtai idemity uder the policy by meas of a idemified party s edorsemet. The ower would ot be covered uder this policy for such claims. The ower may be able to obtai idemity uder the policy by meas of a idemified party s edorsemet. This would be more usual whe the ower has procured the policy as part of a ower-cotrolled isurace program. If the policy has bee procured by the desig-builder it is less likely that such idemificatio will be afforded the ower. Owers Protective Professioal Idemity As oted above, it is ot usual that this policy would be utilized i desig-build. I the evet, however, that the ower has cotracted directly with other A/Es for desig services, the ower s protective policy may provide the ower with idemificatio. 3 Willis North America 1/10

4 I Claim Situatio 2, the project ower alleges ecoomic loss, bodily ijury or property damage arisig from the egliget acts, errors or omissios i the professioal services provided to the ower by the desig-builder or its cosultats. The ower may also allege various breaches of cotract, warraty, fiduciary duty etc., ay or all of which may have resulted i damages to the ower for repair ad rectificatio work expeses, paymets to third parties, ad cosequetial damages (icludig lost reveues). Cotractor s Professioal The cotractor would be covered for its ow acts ad the acts of the desigbuilders desig professioal cosultats, for whose performace it will typically be legally liable. Cotractor s isurer may seek to egage the A/E isurer i the claim resolutio process or proceed agaist them o a subrogatio actio. A/E Professioal Liability The cotractor would ot be covered uder this policy. It would be ecessary for the cotractor ad its isurer to defed the claim ad seek participatio from the A/E s isurer or subsequetly proceed agaist them o a subrogatio actio. Project-Specific Cotractor s Professioal The cotractor would be covered for its ow acts ad the acts of the desigbuilders desig professioal cosultats, for whose performace it will typically be legally liable. Cotractor s isurer may seek to egage the A/E isurer i the claim resolutio process or proceed agaist them o a subrogatio actio. Professioal Owers Protective Professioal Idemity As oted above, it is icreasigly commo for the uderwriters to add the desigbuild cotractor as a isured uder this policy. The cotractor would therefore be covered by the policy with respect to damages arisig out of the acts, errors or omissios of the desig-builder desig professioal cosultats. It should be oted, however, that coverage will ot typically provide for the desig-build cotractor s ow professioal services withi costructio meas ad methods. As oted above, it is ot usual that this policy would be utilized i desig-build. i choosig project parters, careful cosideratio must be give, ot just to familiarity with the project type, but also to the depth of the team members experiece with desig-build projects, to their fiacial footig ad to the cultural fit betwee orgaizatios. 4 Willis North America 1/10

5 I Claim Situatio 3, the desig-builder makes a demad for damages directly agaist the desig professioal cosultats for egligece (or possibly breach of cotract) i failig to adequately perform the professioal services. The actio of the desig-builder may have bee prompted by ower or third-party claims as outlied i the claim situatios discussed above. Cotractor s Professioal This policy would ot geerally provide coverage for the damages. Uderwriters who offer first-party excess idemificatio wordigs would respod to losses i excess of the desig professioal cosultats A/E professioal liability policy. A/E Professioal Liability This policy would provide the desig-builder s desig professioal cosultats with coverage. Project-Specific Cotractor s Professioal This policy would ot provide coverage for the damages. Uderwriters who offer first-party excess idemificatio wordigs would respod to losses i excess of the desig professioal cosultats A/E professioal liability policy. Professioal Owers Protective Professioal Idemity As oted above, it is ow usual for the desig-build cotractor to be a isured uder this policy. Due to the isured vs. isured exclusio, the desig-builder s recourse uder this policy may ot be possible, or be restricted to third-party BI/PD claims oly. If placed, this policy would ot provide ay coverage for this situatio. Cotractors ad desig professioals i joit-veture or teamig relatioships for desig-build projects face substatial exposure for the risk of defective desig ad limited cotractual ad risk trasfer mechaisms for effectively allocatig ad maagig the risks. I desig-build cotracts, the cotractor ad desiger must work out a equitable ad balaced risk maagemet/trasfer protocol or risk losig the collaborative efficiecies of the desig-build approach. Doe properly, desig-build arragemets ca reduce overall risk. Without attetio to the process, cotractor ad desiger are that much more likely to start poitig figers at each other or ed up i litigatio whe problems arise. CONTACT For more iformatio, please cotact: David Grigg david.grigg@willis.com Melody Wofford melody.wofford@willis.com The observatios, commets ad suggestios we have made i this report are advisory ad are ot iteded or should they be take as legal or fiacial advice. Please cotact your ow legal or fiacial adviser for a aalysis of your specific facts ad circumstaces. 5 Willis North America 1/10