CGL v. Professional Liability Policies
A major difference between CGL and professional liability insurance is what risks they are designed to address and the form of the policy. CGL policies and endorsements are standardized across the industry/carriers and use forms issued by the Insurance Services Office, Inc. (ISO). CGL covers liabilities related to bodily injury, property damage, and personal/advertising injuries. It is meant to handle incidents occurring on the insured’s premises or due to non-professional activities.
Professional liability policies, on the other hand, do not use standardized forms and are unique to each carrier. But while there is variation in the form of the policy, the professional liability coverage itself has very little variation. Professional liability insurance focuses on claims arising from professional services and allegations of negligence, and coverage often includes losses directly related to design errors or omissions. These policies typically limit coverage and defense to the named design professional and its related entities for their professional negligence; limit contractual liability to tort liability only; and include “pre-loss” waivers of subrogation.
Given the lack of uniformity in professional liability policies, design professionals and their attorneys should carefully review each policy to understand its terms and potential coverage gaps.
Common Coverage Limitations and Gaps
Understanding
the limitations of professional liability insurance is critical when
negotiating contracts and managing risk with respect to design professionals.
- Indemnification Clauses: Broad indemnity clauses that require the design professional to cover all project-related claims—even those unrelated to their negligence—can create coverage gaps. Since professional liability policies only respond to claims arising from the insured’s negligence, indemnifying others for unrelated issues often falls outside of coverage.
- Elevated Standards of Care: The standard of care for design professionals refers to the ordinary and reasonable care exercised by similar design professionals working on the same type of project, at the same time, in the same place, and under similar circumstances and conditions. Contracts that impose an elevated standard of care, such as requiring “perfect” or “highest quality” services, can trigger exclusions under professional liability policies, which typically cover only the standard of care expected under common law.
- Additional Insured Coverage: While it is common to add project owners and contractors as additional insureds under a CGL policy, this is not feasible with professional liability insurance. These policies are designed to cover only the design professional’s own negligent acts, not claims brought by or against other parties.
- Primary and Non-Contributory Coverage: Contracts often attempt to require the design professional’s insurance policies to be primary and non-contributory, which dictates that a certain policy takes precedence over other policies in the event of a claim where multiple policies are triggered. Professional liability policies, however, generally do not offer this option and are often written as excess coverage.
- Waivers of Subrogation: While waivers of subrogation are standard in CGL policies, they are less common in professional liability coverage. Design professionals should carefully evaluate whether to agree to such waivers, as they may impact the ability to recover losses from other responsible parties.
One way to address some of these coverage limitations is through project-specific professional liability policies such as A&E Professional Liability, Contractors Protective Professional Indemnity (CPPI), and Owners Protective Professional Indemnity (OPPI). These policies cover multiple parties involved in a specific project and can provide broader protection. But due to recent market trends, project specific policies may be difficult to obtain depending on the project size, scope, or timing.
Maximizing
Coverage for Professional Liability Claims
When
it comes to construction and design projects, professional liability claims often
arise between project owners and design professionals. For attorneys representing
both the owner and designer side of the dispute, it is important to understand
how professional liability claims are defined, when the claim needs to be made,
and how to report claims to ensure insurance coverage.
What is a Claim? A professional liability policy is triggered when a claim is made, but what exactly constitutes a “claim”? Typically, it involves a demand for money or services due to some alleged wrongful act by the design professional. Many policies specify that claims must be in writing; however, some may include verbal demands. Whether a claim has been made is viewed from an objective standard—whether a reasonable person would see the communication as a demand for services or damages. If a design professional suspects that a claim might be coming—for example, after receiving a critical letter about delays or design flaws—some insurance policies allow them to report it as a “circumstance.” This proactive step can lock in coverage if the issue later escalates into a formal claim.
Timing Matters. Professional liability policies are typically claims-made policies. Thus, to secure coverage under a professional liability policy, the claim must be made during the policy period or an extended reporting period. If the claim is made after the policy expires, coverage is typically lost—even if the events triggering the claim occurred during the policy period. And if a claim is made during a policy period for events predating the policy, it may be excluded from coverage. Many policies include a prior acts exclusion which excludes from coverage claims based on incidents that the design professional was already aware of before the policy began.
Reporting Requirements. Timely reporting of a claim is crucial to coverage. Once a third-party makes a claim, the design professional must promptly notify their insurance carrier because failure to report a claim within the policy period can allow the carrier to deny coverage. Providing detailed information, including parties involved and potential disputes, strengthens the case for coverage. Late reporting can lead to denied coverage, and some courts strictly enforce policy deadlines regardless of whether the carrier was prejudiced by the delay. However, a few states, like Michigan and Maryland, have laws requiring carriers to show actual harm before denying coverage for late notice.
Defense Costs. Professional liability policies usually have "burning limits" that cover both defense costs and settlements. Every dollar spent on legal defense reduces the amount available for settlements, so aggressive litigation tactics can quickly erode policy limits. Instead, a focus on efficiently and effectively preparing a case against the design professional can help maximize recovery from the carrier.
Whether through practice-based or project-specific policies, professional liability coverage is essential for managing risks in the design and construction industry. Lawyers advising owners, developers, or design professionals should be aware of the key insurance requirements and ensure timely and comprehensive claim reporting. Ensuring that clients are well-informed about claim definitions, policy timelines, and the importance of timely reporting will protect their financial interests and can make all the difference in securing coverage and achieving favorable outcomes.
Author Lara Yost and Editor Debrán O’Neil are members of Carrington, Coleman, Sloman & Blumenthal, L.L.P.’s construction practice group in Dallas, Texas. They primarily represent public and private owners and developers in connection with the construction of large commercial and infrastructure projects throughout Texas. They can be reached at lyost@ccsb.com and doneil@ccsb.com, respectively.
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