Real Estate Developers have a host of liability risks, many of which are not covered by the typical General Liability policy that is usually purchased to insure a project. Anyone who suffers economic damage caused by an error or omission of a developer could bring a suit. This includes investors, tenants, design and construction professionals and other third parties.
Real Estate Developers (RED) Professional Liability policies were created to insure the exposures arising out of both the professional services directly provided by development entities as well as their vicarious liability triggered by those contracted to them.
This is a relatively new insurance product and the handful of insurers offering the coverage all have unique policy forms. The key is to identify the Developers exposures and tailor the policy to cover those exposures. This might include:
- Real Estate and Property Management Services-this could include sales and leasing activities as well as claims arising out of property management.
- Contractors Professional and Contractors Pollution Liability (CPL and CPrL)-these polices can provide direct coverage if the developer is self-performing some of the construction and can protect the developer if they are vicariously exposed to construction errors or omissions, or a pollution event committed by or arising out of work done by construction entities contracted to them.
- Construction Management (CM)-oftentimes a developer will employ a CM on their own deals or the employed CM may work on other deals.
- Owners Protective Professional Indemnity (OPPI) Insurance-an OPPI policy gives the owner access to additional limits of liability if the design professionals working for them have let their professional liability insurance lapse or if their limits are inadequate.
- Real Estate Investment E&O-this would cover liability arising out of the preparation, coordination and solicitation of capital for real estate investments.
Policies can be written on a Project Specific basis and provide coverage through completion of the project with an extension through the Statute of Repose or they can be written on an annually renewable basis.
Coverage is written on a claims-made basis and defense costs are included within the limit. The deductibles usually begin at $10,000 and go up from there. Defense costs also apply against the deductible. Premiums are a factor of the risks involved, the size of the project or the developer and the prior loss history. Minimum premiums may be as low as $10,000 but they can escalate dramatically depending on the risk.
As mentioned above, the key is to first identify those risks and then negotiate the coverages with the underwriter. This is not an “off the shelf” product and the importance of working with a broker who specializes in professional liability cannot be emphasized enough.