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Contractor Project Delivery Methods: Test Your Knowledge! (July 2015)
Attorney Fee Award Approved Based on Incorporated AAA Rules (May 2015)
Mold and Professional Liability Insurance (January 2015)
Who Can Opine on the Design Professional's Standard of Care? (January 2015)
Owners Protective Professional—A Market Update (June 2014)
Contractors Professional Liability--A Market Update (May 2014)
Public-Private Partnerships (August 2013)
Professional Liability Insurance Requirements for Design-Build Projects (June 2013)
Contractor Obligated To Care for Designer (February 2013)
Contractor's Professional Liability and the CGL (October 2012)
Calculating Damages Can Deflate a Design Liability Claim (August 2012)
Sustainable Construction Professional Liability Risks (May 2012)
Mitigation of Damages Coverage (September 2011)
Illinois Supreme Court Rejects an Expert Witness's Expanded Duty of Care (May 2011)
Failing To Define the Standard of Care (January 2011)
Take Advantage of Project Excess Endorsements (January 2011)
Project Professional Liability Insurance for Construction Firms (November 2009)
Understanding Contractor's Protective Insurance (June 2009)
The 2007 AIA Document: Changes in Formal Dispute Resolution (May 2009)
Design Professional's Attention to Contract Clauses Can Pay Dividends (September 2008)
Contractors Professional Liability Market Update (June 2008)
Owners Protective Professional Indemnity Insurance (March 2008)
Protection of Architectural Plans (September 2007)
Contractors Professional Liability Update (August 2007)
Project Professional Liability Insurance Alternatives (June 2007)
Remote Relations and Legal Duties of Design Professionals (September 2006)
Trying To Do the Right Thing: Self-Preservation by Good Faith Decision Making (March 2006)
Are You Really Protected from Consequential Damages Exposure? (November 2005)
Higher Policy Limits for Specific Projects (October 2005)
Negligent Misrepresentation and the Economic Loss Doctrine (July 2005)
The "Bargained-for" Result: Torts, Contracts, and Statutes of Limitation (June 2005)
Unexpected Hazardous Materials—What Do You Do When the Owner Says "Keep Going"? (April 2005)
Dealing with Ambiguities in Design-Build Contracts (January 2005)
Design-Build Teammates—Who Pays Liquidated Damages First? (October 2004)
Design-Builder Not Entitled to Equitable Adjustment (September 2004)
Making the Most of Standard Indemnity Clauses (June 2004)
Standards Needed for Mold Exposure, Testing, and Remediation (April 2004)
Insurer Uses Contractual Liability Exclusion To Deny Coverage (June 2003)
The Ability To Disclaim Liability Resulting from Inspection Duties (May 2003)
Capping Damages Against Design-Builders (March 2003)
Copyright Infringement of Design Documents (November 2002)
Design Disclaimers and Implied Warranties (November 2002)
Insurance Coverage—Waivers of Subrogation (August 2002)
Stumbling Blocks to the Defense of Torts and Contractual Indemnity Claims (July 2002)
Contract Documents of the Design-Build Institute of America (May 2002)
Public Agency Exempted Project from Competitive Bidding (February 2002)
Architects and "Design and Construct" Liability under the ADA (December 2001)
Problems with Arbitration in Design-Build (November 2001)
The Design Professional's Responsibility for Job Site Injuries (September 2001)
Design-Build Engineer Held Liable for Negligence (July 2001)
Design Professional Liable for Approving Payment Absent a Bond (June 2001)
Superfund Decision May Benefit Design Builders (April 2001)
The Design Professional's Protection under the Economic Loss Doctrine (March 2001)
Professional Liability: Are Contractors Adequately Protected? (December 2000)
What Is Subrogation ... and Why Is My Contract Waiving It? (December 2000)
AIA Standard Form Is an Acceptable "Allocation of Risk" (September 2000)
Insurance for Architect- and Engineer-Led Design-Build Projects (August 2000)
Project-Specific Professional Liability: Who Really Pays for Design Errors? (May 2000)
The Design Professional's Obligation of Good Faith (May 2000)
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Understanding Contractor's Protective Insurance

June 2009

For the past 10 plus years, many insurance professionals have used the acronym "CPPI" as though they truly understood all its benefits and coverage terms. For the record, "CPPI" is a service-marked product of Zurich American and stands for Contractor's Protective Professional Indemnity and Liability Insurance. It does not refer to an industry product in general and offers both professional liability and contractor's protective coverage. Its the contractors protective coverage part that is understood by most.

by Jeff Slivka
New Day Underwriting Managers

Since Zurich is the originator of this coverage, and up until last year the only one to offer it, this product is most commonly connected to the company. However, today there are now two markets offering Contractor's Protective—Zurich and Catlin USA.

After broking various Contractor's Protective policies ranging from the simple and complex to the small and large while working with numerous retail insurance brokers specializing in construction, I have found that a large number of professionals actually have limited contractor's professional liability and risk management insurance expertise. But the good news is that the industry overall has come a long way in its understanding of contractor's professional liability insurance issues. However, this knowledge must be constantly updated since there seems to be a new delivery method or fresh twist introduced to this coverage on a daily basis.

While I will never proclaim to be an expert (according to some business management gurus, an "expert" is a person who has made every possible mistake in a narrow field, and even though I have made some big ones, I still haven't made them all), I can tell you that there are several misperceptions or misunderstandings that have led to a distorted view of contractor's protective insurance. As a result, a better understanding of both its benefits and drawbacks are required.


First, let's consider a basic overview of contractor's protective. When many insurance professionals request contractor's protective coverage, it usually means they are looking for a true professional liability product with an additional coverage part: contractor's protective. Protective coverage is a first-party coverage that indemnifies the named insured, excess of the design professional's professional liability insurance, for costs the named insured incurs, and is legally entitled to recover, as a result of negligent acts, errors, and omissions of design professionals with which the named insured holds a contract.

In addition, it also affords a difference-in-coverage (DIC) above the underlying professional liability policy and extends coverage to the named insured in the event the underlying policy is deficient in coverage. Such deficiencies may include exclusionary language for mold or other pollution conditions, habitational exclusions, cost overrun exclusions, or quantity estimating exclusions that may exist in a design professional's practice program. Essentially, the protective supplements the design professional's professional liability insurance program by providing direct benefits to the named insured, the contractor (a.k.a. design-builder), for the costs incurred above what the design professional can provide via insurance proceeds of its professional liability insurance. As a result, this is much different than the typical liability coverage offered in a professional liability policy.


One of the best and most oversimplified examples used to illustrate the value of protective coverage includes a contractor, who contracts with a design professional (DP) to provide the prime design of a mixed use retail/condominium project. The contractor carries a $5 million contractor's professional liability (CPrL) program including protective coverage. Unfortunately, the design professional designs the project with the improper sized rebar, which is not discovered until after extensive construction work has been completed.

After further inspection, it is then determined that the cost to demolish and rebuild would be approximately $3 million, which is significantly less than the costs associated with proceeding with altered design. Since the contractor is ultimately responsible for the design aspects of the project, and most design build contracts are guaranteed maximum price, the contractor has little or no recourse with the owner but to absorb the additional costs involved with demolishing the original structure and starting construction anew.

Therefore, one of the few options remaining to the contractor includes looking to the design professional, and subsequently the design professional's professional liability insurer, for the repayment of these additional costs. The claim is then made against the design professional's professional liability insurer, which carries a liability limit of $1 million per claim/aggregate. The DP's policy would pay $1 million (provided such policy does not exclude coverage and the limits are intact—not reduced by previous claims) and the protective coverage would then pay $2 million. However, there is an aspect of protective coverage that is often overlooked. It is an excess coverage. Therefore, the protective coverage will not respond until the coverage applicability of the underlying DP's policy is determined. In other words, it may take years to settle the claim under the DP's policy and, until then, the protective coverage will not respond. Even so, the value of such coverage is undeniable.

Other Features

Other important and usually misunderstood aspects of contractor's protective include the following.

Self-Insured Retention (SIR)

The protective coverage usually, but not always, carries a self-insured retention. The self-insured retention only applies in the event the underlying DP's professional liability insurance is not available as a result of previous claims, exclusionary language, canceled policies, and so forth. In the event the underlying DP's policy is intact, the SIR does not apply.

Minimum Insurance Requirements (MIR)

Typically, insurers offering protective coverage require contractors to work with design professionals that have a minimum of $1 million in professional liability insurance. This affects coverage in two ways: (1) no SIR will apply in the event the MIR is met at the time of claim and (2) during such circumstances, the insurer will agree to waive subrogation rights against the DP. If not, the insurer may subrogate back against the design professional for expenses incurred. However, many insurance professionals often mistakenly believe that the protective coverage applies excess of $1 million if stated in the policy as the MIR. In reality, the MIR is just that, a minimum. So, if the design professional is carrying $5 million in limits, which are intact at the time a claim is made by the contractor, then the protective will sit the excess of the $5 million.

Contractor's Pollution Liability (CPL) Endorsement

True CPL can be provided on a blanket basis. This includes coverage for mold liability, pollution conditions arising from physical operations, or the transportation activities performed by or on behalf of the named insured as well as the cleanup efforts or liability associated with challenges confronted at designated or nonowned disposal sites (NODS).


The overriding concept of contractor's protective that many risk managers have come to appreciate is that it provides a supplement to the insurance available under the design professionals' professional liability policy—putting the negligent design professional's insurance on the line rather than replacing it. This not only preserves the contractor's future insurability, but also enables the firm to additional funds in that worst-case scenario.

Since the value of the protective coverage is proportional to the amount of design/build activities a contracting firm provides, not all construction companies need contractor's protective coverage. However, please note that the inverse of this axiom also holds true. In other words, if a firm is involved extensively in design/build efforts, and this can include prime design activities or even design/build contracts with lower tier specialty subcontractors, then that company should certainly consider contractor's protective coverage as a method of insuring against the devastating costs associated with design errors, demolition, and the reconstruction of the original structure.

Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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