Insurance Market Leader Ames and Gough report Premium Price Decreases

Although a slim majority of insurance companies providing architects and engineers professional liability insurance saw their rates stabilize in 2016, nearly one in three experienced modest rate decreases, according to a new survey by Ames & Gough.

Despite intense competition, insurers are maintaining underwriting discipline and placing greater emphasis on claims experience. This year, 95 percent of the insurers surveyed identified recent claims experience as a top reason to raise a firm’s professional liability insurance rates, a significant jump from the 79 percent that cited the factor last year. The other top three underwriting factors this year are: type of projects (84 percent); historic claims experience dating back more than two years (63 percent), and type of work or service (47 percent).

When asked whether plans to develop and repair the U.S. infrastructure raised concerns for architects and engineers professional liability exposures, 63 percent of the insurers surveyed cited the failure of design firms to adhere to contractual best practices when negotiating new projects, 53 percent pointed to firms accepting contractual responsibility outside their expertise, and 32 percent were wary of the inability of design firms to effectively assess and manage subconsultants.
“Even though there’s widespread enthusiasm over opportunities arising from the anticipated investment in infrastructure, design firms still need to maintain sound risk management in evaluating new projects, beginning with reviewing their contracts,” said Joan DeLorey, Ames & Gough senior vice president and partner. “While the insurance market is competitive, the buyers benefitting the most will be those that maintain high standards for managing risk, including evaluating the risk-reward potential of new projects and knowing how a change in project mix might affect their risk profile and insurance program.”
For the second consecutive year, 79 percent reported no change in their overall claim activity compared to prior years; in 2016, however, a greater percentage of insurers (21 percent) saw their claims experience improve and none had a worse experience.
Meanwhile, insurers have been monitoring emerging issues. Among the most prominent were: judicial rulings that are eroding protections for design firms under state statutes, such as economic loss doctrine (79 percent); evolving project delivery methods (e.g., design-build and private-public partnerships), cited by 68 percent; innovation, such as the use of BIM, technology and new construction materials/methods, and international exposures (each at 32 percent).

Consensusdocs and Public Projects

I have attached some information provided by Consensusdocs which is an excellent resource for contractors bidding on public projects.

Link to Consensusdocs Guidelines

Please contact Clay Olson if you would like to discuss public bidding and procurement in South Carolina.  843-224-6676 (m0bile) or email


South Carolina and Strict Liability 

In light of last week’s discussion regarding Hernandezcueva v. E.F. Brady, I thought it fitting to clarify current SC precedent on the issue of strict liability and contracts for services. A link to that article is here.

In South Carolina, strict liability applies only to sales of products and not to the provision of services. Fields v. J. Haynes Waters Builders, 376 S.C. 545, 658 S.E.2d 80 (2008) (builder, as general contractor for construction of home, provided services was not subject to strict liability for damage from installation of defective stucco siding that allowed moisture intrusion).

South Carolina has a Defective Products Act which states that one who sells any product in a defective condition, which is unreasonably dangerous to the user, or consumer, or to his or her property, is subject to liability for physical harm caused to the ultimate user or consumer, or to his or her property, if the following apply:

A. the seller is engaged in the business of selling such a product

B. it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold.

The application of strict liability is illustrated as it is actionable regardless of whether (a) The seller has exercised all possible care in the preparation and sale of his product, and (b) The user or consumer has not bought the product from or entered into any contractual relation with the seller. S.C. Code Ann. Section 15-73-10; see also S.C. Jurisprudence Products Liability § 18.

OSHA and Silica Regulations Close to Finality

The the Occupational Safety and Health Administration (OSHA) has finally sent its comprehensive rule governing worker exposure to silica dust to the White House Office of Management and Budget (OMB) for final review.

A proposed rule until now, the silica guidelines’ pending approval by OSHA will make them law.

Silicosis is the lung disease the rule is trying to curtail. While neither I or anyone I know has ever heard of it, silicosis can be fatal. Evidence suggests that the disease is rare, however, and fatalities have declined since its identification in 1968.

The OSHA guidelines would affect all trades which involve sand blasting, rock drilling or ceramic and glass manufacturing. From a construction industry viewpoint, the silica rule certainly applies to folks working in almost any capacity with concrete and masonry. The rule might also affect those in the business of manufacturing or applying drywall and other synthetic products such as siding materials.

In the grand picture, those in the field will not be overly burdened as silica dust control measures boil down to wearing a half-face respirator and using water or vacuums to dampen dust exposure. Silica dust particles are not super fine like asbestos so it is believed that minimal protection (paper mask) is adequate.

The largest significance will be felt administratively. OSHA guidelines require documentation, reporting, logs, control readings, and further documentation. This burden will serve to keep construction safety and legal departments at the office longer starting in 2017 when the rule is expected to be in effect.

Construction Manager entitled to Additional Insured Status

A recent decision in New York has held that a construction manager was entitled to additional insured treatment under a general contractor’s CGL policy.  Turner Constr. Co. v. Navigators Ins. Co., 2015 N.Y. Misc. LEXIS 2704 (N.Y. Sup. Ct. July 23, 2015).

The Construction Manager (“Turner”)    was hired to “provide pre-construction services and construction management services for the Project.”  

The owner hired two prime contractors under condition that each would procure endorsements to their CGL policies which were to name the owner and a “construction manager” which went unnamed.  

Plaintiff in the underlying suit, Edward Walls, was an employee of a prime contractor and was injured at the job site. He sued Turner and others for injuries. Turner claimed it was an additional insured under a Travelers policy which was issued to the prime contractor employing Plaintiff. Travelers argued Turner was not an additional insured because it was not named in the policy and was nowhere identified as the construction manager. Travelers further contended that Turner was not entitled to a defense because its costs in the underlying action did not equal the deductible in the Travelers’ policy.

The court found that Turner was the construction manager and the contractor’s promise in the contract with the project owner to provide additional insured coverage for the construction manager applied to Turner. 

The court went on to find that additional insured status was conferred under Travelers’ policy for any entity that the insured was required by a written contract to name as an additional insured.  

It was of no consequence that Turner was not named specifically in the contract or policy. Therefore, Travelers had a duty to defend Turner.

Owners and Contractors Protective Liability Coverage Form

I intend to devote several upcoming posts on Owner Controlled Insurance Policies (“OCIP”) or “WRAP” coverage due to its continued emergence in the construction, insurance, and legal industries.  In an effort not to confuse, this article deals (“OCP”), which is an acronym for Owners and Contractors Protective Liability insurance coverage.  Coverage for Operations of Designated Contractors (CG 00 09 12 07) is,  as suggested by the title, intended to protect certain owners and contractors, but only for operations performed for the named insured by the “designated” contractor.  The Designated Contractor is listed on the Declarations Page to the policy.   


In addition to being limited to certain tasks performed by a specific contractor, OCP coverage is further narrowed to protect the interests of a party other than the policyholder.  Consider the following hypothetical to illustrate the “protective” nature of OCP coverage.  Protective policies are designed quite differently than most liability insurance policies purchased by contractors.  Consider a construction agreement between Owner and Contractor which requires Contractor to purchase and carry OCP for the benefit of the Owner.  The plain language within the policy will list Owner as the policy’s named insured.  Despite purchasing and paying the premium, Contractor is not a named insured and, thus, not protected by the policy.    

While helpful to Owner, OCP coverage is not as broad as the sweeping coverage provided by traditional CGL policies.  In almost all circumstances, the Owner is protected by the OCP policy in just two factual circumstances.  These relate to incidents of (a) vicarious liability and (b) supervisory liability which might be imputed upon the Owner for the acts or omissions of Contractor.  Plainly stated, the Owner is not protected or indemnified for the active negligence or omissions created via its own making.


Since coverage is limited to the vicarious liability of the named insured, coverage applies only to liability imposed on the named insured as a result of the designated contractor’s acts and not as result of the named insured’s own acts or failure to act.  Courts have also allowed coverage for acts and omissions resulting from a subcontractor’s work.  Although the OCP does not use the phrase “vicarious liability,” one court stated:

“… the courts must construe the “arising out of [the subcontractor’s work]” provision as one providing coverage in cases                                       where the alleged liability is vicarious.”  [Emphasis added.]  See St. Paul Fire & Marine Ins. and Hardin Constr. Grp., Inc. v. Hanover Ins. and Travelers Ins., 187 F. Supp. 2d. 584 (E.D.N.C. 2000)

However, conventional wisdom to the contrary, one who engages an independent contractor is usually not vicariously liable for the acts or omissions of the independent contractor.


Courts have provided some guidance as to what it considered to be “general supervision.” In Union Electric v. Pacific Indem., 422 S.W.2d 87 (Mo. App. 1967), an employee (Palmer) of the subcontractor (Davey) was seriously injured when he came into contact with an uninsulated power line when trimming trees around the line pursuant to a contract with Union Electric. Palmer brought a complaint against Union Electric, alleging Union Electric was negligent in failing to warn Palmer of inadequately insulated power lines. Union Electric’s insurer contended that Union Electric’s alleged liability did not result from Union’s supervision of Davey in that Union supervised only the result of the work did not supervise the method, manner, or means of performance of the work.

The court ruled:

The factual situation presented shows the insured’s contract with Davey required the insured [Union Electric] to designate the areas along the distribution and transmission lines of the insured where Davey would cut and trim trees. … we hold that the words “general supervision” as used in the policy in question do not mean supervision of the method, manner, and/or means employed by Davey…We hold that the words mean supervision of the work of Davey only to the extent necessary to see that the work was done in accordance with the contract…and to provide the area of the transmission lines where Davey would cut and trim the trees. Palmer’s claim fell within the coverage of the policy. Insured’s failure to warn Palmer arose out of its supervisory function. [Emphasis added.]


The premium for the OCP policy is based on the contract price between the named insured and the designated contractor (usually with a rate per $1,000 of the contract price). Thus, a separate OCP can be several thousand dollars of premium (or more) depending on the size of the project, the limits required, etc.

The OCP policy excludes coverage for bodily injury or property damage if such injury or damage takes place after the earlier of when the operation has been completed or put to its intended use by anyone other than another contractor or subcontractor working for the Designated Contractor on that project.


An OCP policy can reduce disputes between insurance companies concerning which policy should be the first policy to respond to a claim (i.e. which policy will be considered primary). For example, when an owner is a named insured under its own CGL policy and an additional insured under the contractor’s CGL policy, the two insurance companies have to determine which of their respective policies is primary. This often leads to disputes because each carrier argues that the other’s policy should be considered primary. An OCP policy minimizes these disputes because an OCP carrier agrees that its insurance policy provides primary coverage to the owner and that it will not seek contribution from the owner’s own insurance policy or from the CGL policy of the contractor that purchased the OCP policy.


A contractor must be careful when negotiating his or her construction contract with the owners. Contractors must understand the unintended consequences that arise when the owner requires the contractor to purchase the OCP policy and to indemnify the owner for personal injury and property damage arising from the contractor’s negligence in performing its work. In practice, if an accident occurs during construction—an employee of a subcontractor is injured, for example—the employee will sue both the contractor and the owner. The owner will respond by seeking coverage under the OCP policy. The contractor, in turn, tenders to its own CGL carrier, expecting that the OCP carrier will defend the owner and that the contractor’s GL carrier will defend the contractor.

What occurs is the attorney appointed by the OCP carrier to defend the owner asserts a claim against the contractor for contractual indemnification and demands that the contractor (Contractor’s CGL carrier) defend and indemnify the owner pursuant to the indemnification provision in the construction contract. Under these circumstances, not only does the contractor have to pay for an entirely separate OCP policy for the owner, but once coverage under the OCP policy is triggered, the OCP carrier circles back and tenders the claim on the contractor’s CGL policy through the construction contract’s indemnification provision. Simply put, the contractor pays for the OCP policy and then faces increased CGL premiums because of the costs associated with responding to the contractual indemnification obligation.

Contractors (and owners) must understand the interplay between an OCP policy and a contractual indemnification provision. To the extent that an owner is demanding that a contractor purchase an OCP policy, the contractor should attempt to negotiate the elimination of any contractual indemnification provision that requires the contractor to defend and indemnify the owner for claims for personal injury and property damage that are covered by the OCP policy.



An LLC does not shield active members from liability in South Carolina Construction Defect ruling

In this case of first impression arising from a general contractor’s liability for construction defects, the Court held that a member of a limited liability company (LLC) can be held personally liable for negligent acts committed while working for the LLC of which he was a member. The Court stated that, based upon the General Assembly’s intent, the Uniform Limited Liability Act does not shield the member from personal liability from his own torts.

Opinion in Jade Street