Basically, OPP—offered to owners of any construction projects
that hold contracts with design professionals—provides
first-party indemnity to the owner (insured) for damage incurred
as a result of negligent acts, errors, and/or omissions of the
design professionals the firm hires. It provides insurance
protection to the owner/insured if damages exceed the
professional liability insurance limits maintained by the design
professionals under contract to the insured. Under an additional
coverage part, defense expense is provided to protect the owners
from actions against them that arise from design errors of the
design professionals.
Trends
Below are some major trends and observations associated with
the OPP product:
Insurers
continue to expand into this area of insurance. In 2008, there
were two insurers offering such coverage. Today, there are
approximately eight offering OPP programs on a primary basis and
an additional four or five that will entertain OPP on an excess
basis. It is expected that a couple more will enter this segment
in 2014. Even with only 8 to 10 insurers, expect the OPP market
to become a bit more competitive.
Capacity of $10
million with any one of the primary markets is typical. Most
primary insurers will also provide excess, making total capacity
somewhere between $75 million and $100 million for an ordinary
project. More complex projects may yield limits of between $25
million and $50 million. There is still a market or two that can
offer $25 million on a primary basis if they are comfortable
with the owner, design team, and project type.
While market
expansion is a key factor in driving coverage and rates/premium,
the OPP pricing is still driven by the cost of the underlying
professional liability limits of the prime design professional
involved. Owners can still see a savings of between 40 and 50
percent when compared to a primary project professional
liability policy for the design team and secure a program that
reserves the limit of liability for them rather than the design
team. Of course, the reduction in cost is based on the fact that
the OPP is an excess product.
Coverage
continues to morph. Self-insured retentions only apply to the
defense coverage part of the program, whereas, in the past, they
applied to the indemnity coverage part as well. The definition
of professional services has been expanded to track more closely
with typical architect/engineer definitions such as the
inclusion of building information modeling and technology
services. Most programs are written on a non-auditable basis,
but this is slowly changing to auditable programs with usually
10 percent leeway in construction values. On casino projects,
there were three major changes—insurers applying a "gaming
equipment" exclusion, removing coverage for economic damages
resulting from the placement of equipment itself. In addition,
third-party defense limits where reduced to $1 million. Lastly,
on certain habitational projects, the third-party defense limit
was reduced or eliminated.
Insurers are
making appropriate changes to their policy forms to address the
specific needs of design-builders, so much so that a few have
developed specific OPP policy forms to address the fact that the
design-builder is holding the contract for design with the owner
rather than the prime design professional.
Insurers
are still willing to add the excess contractors pollution
liability (CPL) for the construction portion of the project at a
very competitive price when compared to purchasing a project CPL
program.
Although OPP is
offered on a "blanket" basis to those owners with multiple
projects, few owners take advantage of the blanket option and
tend to insure on a project-by-project basis. Owners should
investigate the various options available to them when dealing
with multiple projects.
A Look Ahead
Considering the size of the construction industry and the
expense associated with insuring the design team on a project
basis, OPP is still an undersold or under-purchased product. It
continues to become a much more cost-effective way for owners to
align the design risk on a project and insure themselves
accordingly for catastrophic loss. As the market continues to
expand, we'll see an increased interest from owners. Simply put,
for those agents and brokers out there with project owners, if
you are not educating your owner clients about OPP, someone else
may.