Design professionals are oftentimes reluctant to contractually agree to defend their client (e.g., the owner) from claims arising from their negligence. The reason for this is typically twofold: (1) their professional liability policy does not permit the owner to be an additional insured to insure the owner from claims arising from the design professional’s negligence and (2) their professional liability policy does not cover this contractual obligation. If there is no insurance to cover this contractual defense obligation, this means the design professional has to come out of pocket to cover the defense costs, which can be exorbitant based on the nature of the claim.
However, a relatively new product has hit the market catered to design professionals known as Contractual Defense Protection. Unlike typical insurance where there is a deductible, with this product, there is no deductible. Rather, it splits the costs of defense with the design professional-insured (through a coinsurance clause) based on an 80/20 split, where the design professional is responsible for 20% of the defense costs up to a per-claim cap. This is certainly better than the alternative where the design professional is contractually liable for 100% of the costs.
For more information on this product, please review this article. This article explains the Contractual Defense Protection product and the rationale behind the product to cover a design professional’s contractual duty to defend obligation.
Please contact David Adelstein at firstname.lastname@example.org or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.