Professional and Product Liability - Retroactive Coverages
May 30, 2019
By: Miri Lebhar, VP, Itzick Simon - the leading construction insurance agency
Although professional liability and product liability insurance are of critical importance for planners and construction contractors, they are often dealt with from the perspective of contractual requirements. A common situation is that a professional (architect, engineer, civil engineer or contractor) seeks to purchase professional liability insurance only following a requirement in the contract (which sometimes seems excessive, excessive and even, worse, unnecessary). Why is this a potentially costly mistake? Well, mainly because both of these insurances – both product liability and professional liability – have a great deal of significance in retroactive coverage. These are two insurance policies whose basis is the date the claim was filed . What is called in professional language – Claims Made claims.
That is, when a tort claim is filed following failures or defects at a construction site, and these claims are usually filed against the entire chain of those involved on the site (architects, engineers, construction workers and contractors), the existence of effective insurance coverage by virtue of professional liability or product liability relies on two critical conditions:
Valid insurance at the time of work – Did the defendant have valid insurance at the time the work was performed? And if it is a claim against a planner, do these periods also include the planning period and not just the stage of execution on the ground?
Valid insurance at the time the claim was filed – Did the defendant have valid insurance on the “day the claim was filed” (Claims Made)?
If either of these two conditions is not met, the defendant is in a real problem. Let's take an example of an architect who purchased professional liability insurance for the first time after ten years of activity, and the policy did not include retroactive coverage for the past. In this situation, claims against the architect that concern projects that were carried out before the policy was purchased are not covered. They said that from now on, professional liability and product liability insurance apply not only to the future and present, but, more importantly, to the past.
By: Miri Lebhar, VP, Itzick Simon - the leading construction insurance agency
Although professional liability and product liability insurance are of critical importance for planners and construction contractors, they are often dealt with from the perspective of contractual requirements.
A common situation is that a professional (architect, engineer, civil engineer or contractor) seeks to purchase professional liability insurance only following a requirement in the contract (which sometimes seems excessive, excessive and even, worse, unnecessary).
Why is this a potentially costly mistake? Well, mainly because both of these insurances – both product liability and professional liability – have a great deal of significance in retroactive coverage. These are two insurance policies whose basis is the date the claim was filed . What is called in professional language – Claims Made claims.
That is, when a tort claim is filed following failures or defects at a construction site, and these claims are usually filed against the entire chain of those involved on the site (architects, engineers, construction workers and contractors), the existence of effective insurance coverage by virtue of professional liability or product liability relies on two critical conditions:
- Valid insurance at the time of work – Did the defendant have valid insurance at the time the work was performed? And if it is a claim against a planner, do these periods also include the planning period and not just the stage of execution on the ground?
- Valid insurance at the time the claim was filed – Did the defendant have valid insurance on the “day the claim was filed” (Claims Made)?
If either of these two conditions is not met, the defendant is in a real problem. Let's take an example of an architect who purchased professional liability insurance for the first time after ten years of activity, and the policy did not include retroactive coverage for the past. In this situation, claims against the architect that concern projects that were carried out before the policy was purchased are not covered. They said that from now on, professional liability and product liability insurance apply not only to the future and present, but, more importantly, to the past.
Professional liability, retroactive coverage for planners
The date of filing the claim is the basis upon which a professional liability policy is assessed. This is a fundamental issue since, as far as planners are concerned, the date of the damage is often the date of the planning (and not the date of the accident) . For example, if there is a collapse at a construction site, and the collapse is the result of poor architectural planning, protection under professional liability depends on the existence of a policy at the date of the planning. Even if the poor planning was carried out many years earlier.
Experience in the field teaches that professional liability insurance should be purchased at the earliest possible date for the architect, engineer, civil engineer or planner. From the first moment he begins working on the project. Attracting a "long tail" is critical and the recommendation in this regard is clear. Professional liability insurance should be purchased as early as possible and preferably from the moment business activity begins.
Any project that is planned and carried out in the absence of a policy may be without future insurance coverage, even if professional liability insurance is purchased at a later date, and is valid on the day the claim is filed.
It is important to note that professional liability insurance coverage is designed to provide a solution not only for justified and well-founded claims. Harmful events on a construction site give rise to claims against the entire chain of those involved, so even engineers and architects who work impeccably, and who are careful to distinguish between minor and major, may find themselves with a lawsuit in hand.
Only a valid professional liability insurance policy will allow that architect or engineer to transfer the burden of defense to the insurance company. Without such a policy, the financing of legal expenses will be placed on the shoulders of the professional, and as is well known, legal proceedings may take a long time and involve considerable costs in huge amounts.
Ensuring continuity of insurance
Similar to many policies in the construction field, a professional liability policy must also maintain "insurance continuity", as it is a policy based on the day the claim is filed. Only effective insurance continuity meets the condition regarding claims dealing with past projects (including after the end of the activity).
When switching between policies, it is necessary to ensure that the insurance continuity is maintained, and that the planner is insured at any given moment with retroactive insurance coverage to the past. In this regard, it should be noted that there are certain insurance policies on the market that allow the purchase of retroactive coverage to the future, at costs that decrease over the years.
The date of filing the claim is the basis upon which a professional liability policy is assessed. This is a fundamental issue since, as far as planners are concerned, the date of the damage is often the date of the planning (and not the date of the accident) . For example, if there is a collapse at a construction site, and the collapse is the result of poor architectural planning, protection under professional liability depends on the existence of a policy at the date of the planning. Even if the poor planning was carried out many years earlier.
Experience in the field teaches that professional liability insurance should be purchased at the earliest possible date for the architect, engineer, civil engineer or planner. From the first moment he begins working on the project. Attracting a "long tail" is critical and the recommendation in this regard is clear. Professional liability insurance should be purchased as early as possible and preferably from the moment business activity begins.
Any project that is planned and carried out in the absence of a policy may be without future insurance coverage, even if professional liability insurance is purchased at a later date, and is valid on the day the claim is filed. It is important to note that professional liability insurance coverage is designed to provide a solution not only for justified and well-founded claims. Harmful events on a construction site give rise to claims against the entire chain of those involved, so even engineers and architects who work impeccably, and who are careful to distinguish between minor and major, may find themselves with a lawsuit in hand. Only a valid professional liability insurance policy will allow that architect or engineer to transfer the burden of defense to the insurance company. Without such a policy, the financing of legal expenses will be placed on the shoulders of the professional, and as is well known, legal proceedings may take a long time and involve considerable costs in huge amounts.
Ensuring continuity of insurance
Similar to many policies in the construction field, a professional liability policy must also maintain "insurance continuity", as it is a policy based on the day the claim is filed. Only effective insurance continuity meets the condition regarding claims dealing with past projects (including after the end of the activity). When switching between policies, it is necessary to ensure that the insurance continuity is maintained, and that the planner is insured at any given moment with retroactive insurance coverage to the past. In this regard, it should be noted that there are certain insurance policies on the market that allow the purchase of retroactive coverage to the future, at costs that decrease over the years.
As can be seen from the above ruling, when the court has difficulty determining the division of liability and individually isolating the degree of independent contribution of each defect and defect, it is quite possible that the defendants will be determined to be "jointly wronged". Section 11 of the Torts Ordinance [New Version] states that "If any two or more persons are liable under the provisions of this Ordinance for a particular act, and the act is a tort, they shall be jointly liable for that act as joint wrongdoers and may be sued for it jointly and severally". In court rulings, it is customary to divide these events into three types: jointly wronged. Separately wronged, who caused one indivisible damage. Separately wronged who caused separate damages. To the extent that it is determined that the defendants are jointly wronged or separately wronged who caused indivisible damage, the liability for compensation will be for the "full damage" in a "joint and several" manner. This is what happened in the above case. The court ruled that the construction defects could not be divided independently, and then ruled that all defendants would be liable for compensation. In the next stage, the court even outlined the division of liability between them.
Purchasing retroactive coverage to the past, is that possible?
Contractors, just like planners, should purchase professional liability insurance coverage. The purpose of insurance is to provide protection against claims arising from negligence such as deviation from plans, defective work, and the like.
It is true that, as far as contractors are concerned, it is (relatively) easy to identify the time of failure, as the event can only occur during execution. However, the consequences for the contractor are just as dramatic.
Consider, for example, a contractor who was negligent in carrying out work on a construction site, deviating from the engineering or architectural design that was completely correct and is now required to make a series of repairs to address the problem. The repairs cause a delay in work on the construction site, and as a result, a delay in delivery. Claims that are filed in the future against the contractor due to the above delays can be well covered under professional liability insurance, as long as the insurance is purchased by the contractor in a personalized and professional manner.
We note in a footnote that professional liability insurance is not intended to cover the failure itself, but only the financial damages caused to the client due to negligence , and the above believes that the performing contractor should bear them due to his negligence.
Professional liability insurance with retroactive coverage for contractors
Product Liability – Retroactive Coverage
Another policy that must be addressed in the context of retroactive coverage is a product liability policy . According to Section 1 of the Defective Products Liability Law, 5700-1980, a building falls under the definition of the term "product".
For construction contractors, they are exposed to tort claims for failures in the building after its delivery that caused property damage, bodily injury, or financial damage. In order for insurance coverage under a product liability policy to provide a solution to the contractor on the day of the order, it must meet two cumulative conditions:
- Policy valid at the time of delivery.
- A policy valid at the time of the damaging event.
That is, if a harmful event occurs to a person due to a failure in a building that was delivered three years ago, and a claim is filed against the executing contractor, a product liability policy will provide insurance coverage only if it was in effect both at the time the construction was delivered and at the time the damage was actually caused.
Another policy that must be addressed in the context of retroactive coverage is a product liability policy . According to Section 1 of the Defective Products Liability Law, 5700-1980, a building falls under the definition of the term "product". For construction contractors, they are exposed to tort claims for failures in the building after its delivery that caused property damage, bodily injury, or financial damage. In order for insurance coverage under a product liability policy to provide a solution to the contractor on the day of the order, it must meet two cumulative conditions:
Policy valid at the time of delivery.
A policy valid at the time of the damaging event.
That is, if a harmful event occurs to a person due to a failure in a building that was delivered three years ago, and a claim is filed against the executing contractor, a product liability policy will provide insurance coverage only if it was in effect both at the time the construction was delivered and at the time the damage was actually caused.
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