Owner’s Protective Professional Indemnity (OPPI) – What is it and why is it beneficial to your owner and developer clients? Developed to provide owners and developers of construction projects with a cost-effective and broad alternative to expensive project-specific professional liability (PSPL) policies, OPPI indemnifies the owner or developer for damages incurred due to catastrophic design errors or errors in professional services committed by the design team. In addition, third-party defense and indemnity coverage protects owners from claims arising from the vicarious liability assumed through contracting with design professionals. By providing a broad excess layer above available design professional insurance, along with a primary defense against third-party claims, OPPI has become a cost-effective tool when managing project design risk.
Benefits of OPPI coverage include:
- Interests between the owner and prime design professional (DP) are aligned. In other words, the owner simply requests a certificate of insurance from the DP evidencing their professional liability (PL) limits and OPPI will sit excess of that limit (generally speaking). It does not replace the PL insurance of the DP as PSPL does.
- Cost-effective and easily obtained when compared to alternatives of PSPL
- Unlike alternatives, the owner and/or developer is the named insured and receive full benefits of the policy limit.
- Supplements liability insurance provided by the design professional where availability and quality over multiple years cannot be easily confirmed
- “Difference in coverage” in the event the underlying policy is deficient in coverage
- Offers primary protection for the named insured against third-party claims alleging responsibility for damages caused by design errors
- Contractor’s Pollution coverage is available providing the owner with excess coverage for pollution claims, including mold
- Built-in Extended Reporting Periods simplify alignment with statute of repose
A few claims examples follow. For more claims, please visit the RT New Day blog.
- A hospital owner experienced a large loss due to a structural steel design error. Due to design negligence, part of the new hospital tower was rendered unusable. The result was approximately $20 million in direct damages to the building, and another $5 million in consequential damages. The PL limits secured from the prime DP and structural engineer only totaled $10 million. The balance was paid by the OPPI.
- The project Owner of a large hotel project incurred $10 million in additional costs due to the negligence of its retained soils engineer. The prime architect’s policy had $1 million in limits. The OPPI policy sat excess of the prime architect’s practice policy to cover the Owner’s $9 million loss.
- A structural engineer hired by an owner used the incorrect code on a mixed use project resulting in higher structural steel costs. The Owner incurred $5 million in additional costs and asserted a claim against the structural engineer for those additional costs. However, the engineer’s policy only had $2 million in limits. The Owners Protective Indemnity policy sat excess of the engineer’s practice policy to cover the Owner’s remaining $3 million loss.
Don’t let your owner and developer clients get caught in a potentially costly claims situation like those discussed above. Call on your RT National Environmental and Construction Professional Practice team to assist in educating your insureds on the value of an OPPI policy.