When a problem arises on a construction project which allegedly was caused by a design act, error or omission, the owner typically brings a claim against the design team. The Professional Liability Practice Policy of the at fault design professional should cover any damages caused by the error. But what if the design professional’s professional liability policy had lapsed, or the limits carried are inadequate to pay for the damages? This problem is compounded by the limits many design professionals purchase for their annually renewable practice policy which tend to be fairly low. These are the primary reasons the Owners Protective Professional Insurance (OPPI) policy was created.
The OPPI Policy provides excess coverage over the professional liability policy of the at fault design professional. Each design professional is required to carry a certain minimum limit of professional liability coverage, usually $1 million. These primary errors and omissions policies are similar to a deductible. In the event there is a claim against the design professional for an amount exceeding the design professional’s policy limits, the OPPI would act as an excess policy allowing the owner/insured to be compensated for the entire loss up to the OPPI policy limit.
OPPI policies may also provide defense coverage for third-party claims made directly against the owner/insured arising out of the errors of the design professionals working for the owner. It is important to point out that this policy does not extend coverage to the design professional and it does not cover the owner/insured for their own negligence. If for example, the Owner provided in-house Construction Management services, they would need to buy a specific policy to cover those services.
The OPPI policy also acts as ‘Difference in Conditions’ insurance. If the OPPI policy is broader than the design professionals practice policy, the OPPI policy will drop down and provide primary coverage subject to the policy’s deductible. These policies can be written on a project specific basis with coverage through construction plus the applicable statute of repose, or on an annual renewable policy covering all of the owner/insureds projects.
An OPPI policy offers several benefits to the owner/insured.
It is less expensive than a separate Project Specific Professional Liability (PSPL) policy, often half as much. With an OPPI Policy the owner is the Named Insured, giving them more control over the program. It enables the owner to select from a broader range of design professionals, many of whom may have been disqualified because of inadequate practice policy limits. Some programs will extend coverage to include vicarious coverage for the owner arising out of Contactors Pollution Liability events.
Advantages to the design professional include not having to pay for and endorse their practice policy for higher limits and not being subject to the higher deductibles usually required when a Project Specific Professional Liability Policy is placed.
There are a handful of insurance companies offering OPPI policies and each company utilizes its own policy form. The coverage needs to be understood, and where appropriate, negotiated.
Owners and Developers face significant risks. An Owners Protective Professional Insurance policy can be a critical component in an owner’s or developer’s insurance portfolio.