Design-Build Creates Unique Liability
Design-build contractors take single-source responsibility for both design and construction. This consolidated accountability creates professional liability exposures that general contractors working from architect plans don't face.
The Single-Source Challenge
In traditional delivery, if a design flaw causes problems, the owner can pursue the architect for design errors and the contractor for construction defects. Liability divides between parties.
In design-build, there's no division. Your firm is responsible for everything. Design errors, construction defects, and the interplay between them all fall on you.
Professional Liability vs. General Liability
These coverages address different things.
| General Liability | Professional Liability | |-------------------|----------------------| | Bodily injury to third parties | Economic losses from professional errors | | Property damage | Design flaws and omissions | | Physical accidents | Project management failures | | Job site incidents | Negligent professional advice |
General liability covers physical harm and property damage. Professional liability covers pure economic losses, the financial consequences of your professional mistakes even when nothing is physically damaged.
What Professional Liability Covers
Design Errors
Structural calculations requiring expensive fixes. Specification errors causing change orders. Drawing omissions delaying construction. Code compliance failures.
Project Management Failures
Schedule management errors resulting in late completion penalties. Cost estimation mistakes causing budget overruns. Coordination failures between trades requiring rework.
Professional Services
Feasibility studies with incorrect conclusions. Site selection recommendations that prove problematic. Consulting services and pre-construction planning.
Who Needs This Coverage
Design-Build Firms
If you provide any in-house design services or coordinate design subconsultants, you have professional liability exposure.
Construction Managers at Risk
CMAR firms guarantee maximum prices and provide pre-construction services including value engineering and constructability reviews. Professional liability applies.
GCs Offering Professional Services
Even traditional GCs face exposure when offering value engineering, design assist, pre-construction consulting, or schedule and cost consulting.
Contract Requirements
Many sophisticated owners now require professional liability from all team members regardless of delivery method.
Understanding Claims-Made Coverage
Professional liability policies are claims-made, meaning coverage applies when the claim is made during the policy period, and the error occurred after the retroactive date.
This differs from occurrence-based GL coverage. Gaps in claims-made coverage can leave you exposed for past work.
Retroactive Date
The earliest date the policy covers. Work before this date has no coverage.
Tail Coverage
Extended reporting period allowing claims after policy ends for errors during the coverage period. Critical when retiring, selling, or closing the firm.
How Much Coverage You Need
| Firm Type | Typical Limits | |-----------------------|----------------| | Small residential design-build | $500K to $1M | | Mid-size commercial | $1M to $2M | | Large commercial or institutional | $2M to $5M | | Major projects | $5M to $25M or more |
Coverage should at least equal your largest project contract value. Many owners require limits matching the design portion's value.
Common Exclusions
Intentional Acts
Fraud, dishonesty, and intentional violations are never covered.
Guarantees Beyond Standard of Care
Specific performance promises or warranties beyond professional standards may not be covered.
Pollution
Environmental claims typically require separate pollution liability coverage.
Bodily Injury and Property Damage
These belong to general liability, not professional liability.
Cost Factors
Premiums depend on revenue, project types, design staff qualifications, claims history, and specific services offered.
For a design-build firm doing $5 million annually in mid-complexity commercial work, expect premiums in the $15,000 to $40,000 range depending on specifics.
Risk Management
Proper contracts define scope clearly and include limitation of liability provisions where enforceable. Document design decisions and client approvals. Maintain quality control over design services. Manage subconsultant professional liability requirements.
Common Questions
If I sub out all design work, do I still need coverage?
You may still have vicarious liability for design subconsultant errors. Review your contracts and discuss with your agent.
What about value engineering that goes wrong?
Value engineering recommendations that cause problems can trigger professional liability claims. This is specifically why coverage matters even for GCs doing limited professional services.
How long should I maintain coverage after completing projects?
Claims can arise years after completion. Maintain continuous coverage throughout your career. When retiring or selling, tail coverage extends your protection.