BRIEFINGS
By Joseph Reynolds , JD , CRIS
STAYING SAFE
Owner ’ s protective professional indemnity has become a valuable tool to help insulate CRE professionals from various exposures during development .
Without the proper coverage , even seemingly inconsequential design and construction management errors and mishaps can turn into financial disasters . Billed as one of the world ’ s most luxurious buildings and home to celebrities like legendary quarterback Joe Montana , Millennium Tower in San Francisco opened in 2009 , with more than 400 multimillion-dollar units , soaring panoramic views , and world-class amenities . Despite the fanfare and extensive planning , however , the 58-story high-rise sunk , tilting more than 18 inches due to the alleged improper installation of the building ’ s pilings and the natural dewatering process that weakened the soil beneath the tower . A $ 100 million fix that included installing 52 new pilings into bedrock needed to be halted in 2021 when the building unexpectedly sunk another inch after work began .
Unfortunately , stories like these are far too common for an industry that often spends hundreds of millions of dollars to correct problems . The transportation , warehouse , health care , logistics , institutional , and sports environments are riddled with exorbitant claims related to everything from the installation of inadequate HVAC systems to the inability to properly open and close retractable stadium roofs .
In some cases , the problems arose even after the key players followed the ordinary and customary standards of care for design professionals . Others were the fault of circumstances ranging from hiring professionals who lacked the proper experience to the use of subpar materials or erroneous surveys . More immediate challenges such as work disruptions related to COVID-19 or supply chain shortages can only exacerbate these problems .
The responsibility to correct problems often falls directly on the project ’ s owner or developer once all the usual resources are depleted . Unbeknownst to some owners , the limits on the design professional or design builder ’ s architects and engineers professional liability ( A & E PL ) policy could very well be exhausted by other unrelated claims before the exposures on their projects are even identified . Remember : Design-related issues can be discovered long after project completion . In the case of San Francisco ’ s Millennium Tower , the cause of the building ’ s shifting and tilting problem wasn ’ t uncovered until nearly seven years after its grand opening .
As a result , owner ’ s protective professional indemnity ( OPPI ) has gained great traction for its ability to help cost-effectively protect project owners from the exposures of not only architects and engineers , but also designers / builders , construction managers , subcontractors , and other firms performing professional services . Written solely for the benefit of project ownership , OPPI policies typically provide dedicated excess professional liability limits for costs the owner is legally entitled to that are above and beyond the underlying architect and engineering , as well as construction professional liability coverages . Policies also typically include a third-party defense and indemnity insuring agreement for claims brought directly against the owner . Coverage is intended to help address professional liability exposures throughout the life of the project and include an established policy retroactive date beginning at the date of first executed professional liability contract , through the project construction period , and extending to the termination of the statute of repose .
Here are some additional details about how the typical OPPI policy can help protect project owners :
Difference in Conditions Provisions ( DIC ). Not all architects and engineers policies are built alike . Some place a greater emphasis on price and economy , rather than the quality of coverage . They also often include a wide variety of exclusions that can range from bridges and tunnels to condominium projects to consequential damages . This provision allows the OPPI to “ drop ” into a primary insurance position in the event it is more restrictive than the OPPI . In the event the underlying professional liability insurance is
Photo by Michael Lee
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