Chapter 8 - § 8.5 • PROFESSIONAL LIABILITY INSURANCE

• Jurisdiction: Colorado

§ 8.5 • PROFESSIONAL LIABILITY INSURANCE

Whether representing or defending an A/E, owner, or other participant in the design and construction process, a basic understanding of the insurance available to A/Es is required. The insurance available drives many of the contractual provisions the A/E may insist upon and, later, when problems arise, the claims and defenses that can or should be asserted. An attorney asserting a claim against the A/E must be familiar with the design professional's insurance in order to craft pleadings that have the greatest likelihood of invoking coverage.

Professional liability insurance, sometimes referred to as errors and omissions (E&O) insurance, protects the A/E from damages caused to others by the A/E's negligent acts, errors, or omissions in the performance of professional services.

There are a fair number of carriers providing A/E professional liability insurance. While different companies have different policy forms, all policies currently available to A/Es share certain features that are important to understand.

§ 8.5.1-Claims-Made/Claims Made-and-Reported Policies

All A/E E&O insurance currently available is written on either a claims-made or a claims made-and-reported basis. Under both of these policy forms, the insurance in force on the date a claim is first made is the only insurance that will respond, even though the project was completed several years previously. A claims-made and a claims made-and-reported policy "cover[] only those claims brought against the insured during the policy period and reported to the insurer by a date certain, typically within a brief window following the expiration of the policy period. The date-certain notice requirement effectuates the parties' arrangement and limits the insurer's liability to those claims reported within the time specified."⁵⁷⁷ Both claims-made and claims made-and-reported policies cover claims made during the policy period, provided that the negligent act, error, or omission that gives rise to the claim occurred after the retroactive date. The retroactive date is normally the date on which the A/E first purchased and has since maintained continuous, uninterrupted coverage. It is possible for the retroactive date to be some different date, such as the A/E's date of incorporation or organization. A claim arising from services performed prior to the retroactive date will not be covered in the absence of a prior acts endorsement.

The crucial factor is that, for coverage to exist, the policy must be in force at the time the claim is made. In order to have coverage today for a project completed five years ago, the policy must have been continuously in effect. The A/E that is insured continuously for 20 years - but drops coverage even one week before a claim is made - has no insurance for that claim unless an extended discovery reporting period has been purchased.⁵⁷⁸

§ 8.5.2-Notice-Prejudice Rule Inapplicable

A claims-made or a claims made-and-reported policy differs from an occurrence policy, like the commercial general liability policies commonly carried by contractors and subcontractors. The latter requires that the insured timely provide the insurer with notice of a claim and, where that notice is not timely provided, an insurer may decline to defend and indemnify, but only where the delay in notification has prejudiced the insurer.⁵⁷⁹ An insurer underwriting a claims-made or a claims made-and-reported...