fully eroded , the OPPI policy will likely still be available for the client , albeit , potentially subject to a self-insured retention .
Professional Indemnity Dedicated Capacity Solely for Owners . Often called “ owners protective ,” this coverage is offered to project owners who directly hold contracts with design and construction professionals . While the OPPI typically provides first-party indemnity to the owner for damages incurred as a result of the design professional ’ s negligence , it does not extend the same benefits of coverage to the design and construction teams . Since the design and construction professionals are not named in the policy and the OPPI is written in the name of the owner , the professional indemnity is intended to sit in excess of the design professional ’ s professional liability insurance — essentially supplementing the coverage that the firms bring to the project through their own professional liability insurance programs .
Minimum Insurance Requirement ( MIR ). Many incorrectly see the MIR as an attachment to the professional indemnity . It is not . Rather , the MIR assists in pricing the overall OPPI program and establishes a minimum attachment point for the OPPI program . In short , the OPPI sits over any remaining capacity of the underlying professionals ’ insurance , whether or not it has been eroded by prior claims . This typically applies to every professional services firm under direct contract with the owner . So , if the MIR is set at $ 1 million for each claim / aggregate and $ 2 million is available from the responsible design professional ’ s PL insurance , the OPPI would attach at $ 2 million provided all the other terms and conditions under the policy were met . The same would also occur in the event the design professional ’ s PL limits are exhausted or are not applicable due to the exclusionary wording . In a similar scenario , if the MIR is set at $ 1 million for each claim / aggregate and the design professional ’ s PL provides nothing , the PI would either attach to the first dollar or potentially subject be to a self-insured retention ( depending on the particular policy ).
Self-Insured Retentions ( SIRs ). Under most OPPI programs , the SIR applies only to the third-party defense and indemnity insuring agreement . The protective indemnity insuring agreement usually has no retention , relying on underlying PI insurance to act as a de facto SIR . In some cases , a carrier may apply an SIR to losses arising out of a specific design or construction professional whose contract contains limitations of liability which are below the MIR . For instance , if a geotechnical engineer has a $ 50,000 limitation of liability and the MIR for the geotech is $ 2 million , a carrier may use the SIR to pass on the financial responsibility to the owner to satisfy the attachment point under the OPPI
The responsibility to correct problems often falls directly on the project ’ s owner or developer once all the usual resources are depleted .
for this exposure . In addition to reducing the concerns of owners for the quality and nature of the design and construction professional ’ s PL insurance , OPPI risk transfer strategies can also be extremely cost-effective . Depending on the nature of the project and the quality of the contractual arrangements between owners and construction professionals , OP- PIs often can be 50 percent or 60 percent less than comparable project-specific professional liability coverage for similar capacity ( that is , limits ).
Owners also have the certainty and convenience of paying only once for the entire
insurance program and budgeting the placement through their project P & L . With inflation on the rise and insurance rates seeming to follow suit , locking in a program for the life of a project ’ s professional liability exposure is increasingly becoming less of a discretionary risk management technique and more a case of good business sense .
Subsequently , as the availability of project-specific A & E and construction PL policies becomes increasingly scarce , expensive , and / or limited , the protections offered through OPPI programs are now helping provide owners and developers the financial security needed to overcome long-term challenges and complete projects on time , within budget and profitably well beyond project completion . In the age of ever-increasing construction and design cost as well as nuclear verdicts , this program can be effective at helping to shield project owners from the potentially crippling damages resulting from design mistakes , project delays , and professional services errors and omissions .
By Joseph Reynolds , JD , CRIS Senior Vice President in RT Specialty ’ s
Environmental and Construction Professional Practice
Contact him at joseph . reynolds @ rtspecialty . com .
CIREMAGAZINE . COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 17