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Even before the coronavirus pandemic became a reality, the U.S. construction marketplace was expected to post only modest gains, while reshaping its 2020 business model through the ongoing reliance on technological advancements like 3D printing and robotics, design-build methodologies, sustainability and modular and prefabricated building solutions. 

These issues were addressed in RT Specialty, LLC’s Environmental and Construction Professional Practice’s 2020 Market Update, which highlights the trends and challenges confronting the complex commercial insurance industry and defines the state of the environmental and construction-related professional liability insurance marketplace. The Update analyzes the industry at-large as well as the finer nuances of each policy form to provide insurance brokers and agents with information that may be useful to advise owners, developers and contractors regarding risks which may have the potential to financially cripple businesses, cause time-consuming delays and lead to litigation.

In general, the 2020 Market Update details the latest rate capacity and claims information, buying motivators and the underwriting forecasts surrounding each product. An anticipated an increase in claims activity in 2020 across a wide array of environmental and construction-related coverage platforms, is expected to result in the enhanced scrutiny of carriers for emerging contaminants and the need to overcome growing loss ratios.

This was best exemplified by the rise of Contractor’s Pollution Liability policy claims, which increased in 2019 with six- and seven-figure payouts issued to cover the damages associated with mold and bacteria and emergency response conditions. According to an RT ECP analysis of 1,200 contractors purchasing CPL coverage, approximately 1 in 16 contractors experienced a CPL claim during 2019, a 30% increase over the previous year – a trend that is likely to continue since the breadth of coverage provided by the market has never been broader.

In comparison, the market for Contractors Professional Liability coverage is expected to remain competitive with more than 25 markets still providing capacities at the $25 million level and a handful of others offering $50 million. Other opportunities are also emerging for enhancements such as the coverage of defense costs existing outside the limits of liability applicable to Professional Liability in placed policies and Faulty Workmanship offerings that cover the errors and omissions arising from the workmanship of the insured’s self-performed work or use of defective materials or products during their work. Whereas there was only one market consistently offering this coverage, there are now at least three with others “dabbling” with similar policy types.

In addition, Owner’s Protective Professional Indemnity policy forms continued to gain popularity among construction property owners and developers looking for a cost-effective tool to manage covered catastrophic design risk and provide insureds with broad excess above design professional insurance (Protective Indemnity), along with a primary defense against third-party claims. Easily obtained and managed at decreasing rates when compared to industry alternatives, OPPI policies have also been purchased as “rolling” programs, enabling the enrollment of additional projects during the policy period - a concept that makes financial sense for certain owners and developers with a pipeline to similar projects.

In other areas, a generally stable commercial insurance marketplace is influenced by the increased underwriting oversight of various conditions and exposures. For instance, the: 

  • Pollution Legal Liability market continued to grow due to greater contractual and lender requirements. Claims also rose mostly because of the microbial, mold and bacteria exposures afflicting the habitational, hospitality, healthcare and education classes. More than 80% of the claims involved clean-up, business interruption and restoration costs. As a result, the marketplace responded with more restrictive coverage terms and greater underwriting scrutiny, although rates remained fairly consistent.
  • Architects and Engineers Professional Liability marketplace is expected to remain favorable for most purchasers, although more stringent for firms specializing in structural and geotechnical engineering, design-build construction practices and the design work for large, multi-faceted projects. In addition, most carriers are likely to expand their offerings to cover pollution incidents arising out of professional services within the base policy form, while also covering a certain degree of technology services and cyber liability.
  • Real Estate Developers Professional Liability market continues to expand among developers, who are continuing to invest in this expansive, practice-wide RED program rather than protecting against risks on a project basis via an OPPI policy, service/profit-center options.

However, one area that remains undetermined involves communicable diseases and more specifically COVID-19. There is currently a mix of coverages that include some carriers applying exclusions and others offering affirmative coverage for virus or viral matter in their definition of pollution conditions. But that may change in the coming year given that carriers are continually re-evaluating the areas they are willing to cover and the exclusions that may apply.

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