Newsletters
Risk Central
Digital Edition
Sponsored Content by The Hartford
Why Every Construction Project Owner Should Be Asking Their Insurance Team About Enhanced Professional Liability Coverage
The construction industry is booming. With more than 8 million employees and $2.1 trillion worth of structures built each year, construction needs are in high demand, and owners are working hard to meet expectations. Coupled with that, construction often faces some of the most complex claims in the industry today.
To protect against risk, construction project owners should review their insurance policies and work together with risk professionals to mitigate their liabilities.
“More owners are requesting their insurance risk managers to explore different products as risk transfer mechanisms in order to better protect against unseen liabilities or risks on a project,” said Spencer Levin, head of construction professional insurance for The Hartford.
It’s a smart risk strategy, for sure, because many construction projects have multiple parties, subcontractors, architects, engineers and others involved.
One product gaining traction is Owners Professional and Protective Indemnity (OPPI) insurance coverage, which acts as a cost-effective risk transfer solution for construction project owners and their insurance brokers when it comes to professional liability.
“OPPI provides coverage for construction project owners beyond the professional insurance that their design and construction professionals carry,” Levin said.
The Popularity of OPPI
Spencer Levin, Head of Construction Professional Insurance, The Hartford
OPPI is a policy specifically designed for the construction project owner rather than subcontractors. This is driving more owners to this type of coverage as they look to protect their assets and deliver on their promises.
Several factors are also driving the uptick in demand for OPPI policies, making this a popular addition to the risk transfer toolkit for construction project owners.
First, rate increases for professional liability insurance in the architects and engineers (A&E) markets are pushing owners to seek alternative insurance options beyond just requiring architects and engineers to bring more professional insurance to the job.
Second, “there is limited underwriting appetite and capacity for project-specific professional policies in the A&E market, making them harder to obtain,” said Levin.
As a result, project owners are looking for other ways to transfer this risk.
“Additionally, the cost of higher professional insurance limits, such as increasing from $1 million to $5 million or $10 million, can be significant when charged back to the job by subcontractors. In some cases, owners may find it more cost-efficient to purchase an OPPI policy instead,” Levin said.
A final factor that is boosting OPPI popularity comes in instances where lenders require project owners to secure OPPI coverage, further driving the need and demand for this product in the marketplace.
OPPI Benefits for Construction Project Owners
Every good construction risk manager knows that determining appropriate limits differs by project. Factors like size of the job, complexity of the engineering and design components, or the presence of other professional factors could necessitate more coverage.
Where a traditional approach would include only professional liability insurance brought by the architect or engineer on a construction project, OPPI offers owners that extra layer of protection.
The OPPI product is designed to indemnify construction project owners for any errors and omissions of hired professionals, such as architects and engineers, on a construction project in excess of professional liability insurance. The owner has to first secure a judgment or legally binding settlement against a hired professional. The OPPI would then indemnify the owner for any delta between damages the owner incurred and insurance proceeds recovered as a result of such judgment or settlement.
“In this sense, it acts as an excess policy with certain steps the owner must take to be indemnified by the carrier,” Levin said.
At The Hartford, a second key function of the OPPI is its third-party claim function, Levin said. Here, it provides legal defense expenses and pays damages on behalf of the owner for unrelated third-party claims arising from the vicarious professional liability created by subcontracted design or construction professionals on the job.
“For example, if a neighbor near the construction site brings a claim against the construction project owner arising from the professional negligence of their subcontractor, this policy would defend and pay on the owner’s behalf,” Levin explained.
“This second function is crucial, because subcontractors’ professional liability insurance, such as that of architects and engineers, often does not provide additional insured coverage for the owner.”
In such situations, owners will often be left to defend themselves.
Another benefit of the OPPI is in its underwriting process. Although not a legal review by definition, the OPPI underwriting process can be beneficial to construction project owners and their insurance brokers in identifying contractual risk transfer gaps.
“The underwriting process involves assessing both the architect and engineer, including their past experience with similar projects and the owner’s familiarity with the team they have brought on,” Levin said. “Underwriters will consider whether there are any unique design elements in the project, evaluate if the architect or engineer is equipped to handle those challenges and if they are bringing adequate limits of insurance to the project.”
Conversations to Have About OPPI
Protecting against professional liability starts with understanding what’s available. Once owners and their risk teams start looking into OPPI, it’s important to find insurance professionals who understand this coverage and can address any questions.
At The Hartford, the team has been writing construction professional insurance for almost a decade, including OPPI for seven years. They know a thing or two about how to make this policy work for construction project owners.
“Our team has vast experience, with some underwriters having several decades in the industry. Our underwriting approach works to help highlight how risk is being transferred to an owner, such as through limitations of liability or insurance requirements for professional subcontractors. We raise these issues to the risk managers and owners, which can be eye-opening,” Levin explained.
The Hartford has the ability to consider multiple lines of coverage for construction projects alongside OPPI, including builders’ risk, casualty wrap policies and excess placements, so owners know they are in good hands and their risks are being addressed from the start.
“These policies are long-term,” Levin said, “and often run several years, followed by a decade or more of tail coverage to match state statutes of repose. Having coverage backed by a carrier that has been in business for over 200 years, like The Hartford, is a massive advantage and provides peace of mind and stability for these long-term polices in the OPPI space.”
To learn more, visit: https://www.thehartford.com/business-insurance/construction.
The information provided in these materials is intended to be general and advisory in nature. It shall not be considered legal advice. The Hartford does not warrant that the implementation of any view or recommendation contained herein will: (i) result in the elimination of any unsafe conditions at your business locations or with respect to your business operations; or (ii) be an appropriate legal or business practice. The Hartford assumes no responsibility for the control or correction of hazards or legal compliance with respect to your business practices, and the views and recommendations contained herein shall not constitute our undertaking, on your behalf or for the benefit of others, to determine or warrant that your business premises, locations or operations are safe or healthful, or are in compliance with any law, rule or regulation. Readers seeking to resolve specific safety, legal or business issues or concerns related to the information provided in these materials should consult their safety consultant, attorney or business advisors. All information and representations contained herein are as of November 2024.
Links from this site to an external site, unaffiliated with The Hartford, may be provided for users’ convenience only. The Hartford does not control or review these sites nor does the provision of any link imply an endorsement or association of such non-Hartford sites. The Hartford is not responsible for and makes no representation or warranty regarding the contents, completeness or accuracy or security of any materials on such sites. If you decide to access such non-Hartford sites, you do so at your own risk.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with The Hartford. The editorial staff of Risk & Insurance had no role in its preparation.
