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A temporary retaining wall was being constructed for on a new bridge in downtown Atlanta to retain excavated soil as a footing for the bridge pier. The plans specified the placement of retaining wall support beams one-third and two-thirds below the excavation. Everything was going well and ahead of schedule, so the young, inexperienced construction manager agreed to the contractor’s request for placing the two layers of support at the two-thirds point the following morning. 

Unfortunately, a torrential storm the night before caused the water behind the unsupported retaining wall to shift its top 18-inches forward. Even worse, the telltale signs of soil failure upslope from the top of the wall (a C-shaped curved crack in the retained soil) dictated the need for an immediate remediation to save the retaining wall. The construction manager's error in judgment contributed to the project’s shutdown by the job superintendent, causing a one-and-one-half-day delay and frantic scramble to place two layers of supports and a second row of sheet piles behind the bowed wall.

While errors and omissions do happen regularly within the construction world, it’s important to note that the cost to place the extra piles and quickly construct the support beams could have been assessed to the company if the construction manager had been working on a private sector project. This story illustrates the value and benefits of today’s Contractors Professional Liability (CPrL) policies, which could potentially have covered the cost to rectify the construction manager's mistake and the damaged work. 

Rectification or mitigation of loss overage, subject to a self-insured retention, is a way to potentially finance repairs when wrongful professional acts cause damage to construction before project owners make claims against the contractor. Negligent professional wrongful acts can be design errors, or in the example above, a field decision made by a construction manager or even the contractor. 

While most engineers will attest that their plans and specifications will almost always “work” in principle, those plans can sometimes go awry in the field when the true work begins and the potential challenges and design errors emerge. The ability to readily address these errors or the accompanying professional wrongful acts can be beneficial for overcoming the resulting costly delays and ensuring the project’s profitability.

Rectification, which may also be called mitigation of loss, is a primary coverage that every agent or broker should consider advising their insured to include in their CPrL policies. The coverage generally pays the cost up front to mitigate (prevent the construction damage from getting worse) and or rectify (demolish, redesign and replace) failures in construction or services, caused by negligent wrongful professional services, before a likely claim can be made against the contractor. It is important to note that Rectification, oftentimes, will not apply to faulty work, where the contractor simply did not follow the plans and specifications. The damaged construction, many times, must be caused by a professional wrongful act in design, field oversight or field decisions that vary from plans and specifications.

When appropriate, rectification may potentially save the named insured, the insurance company and even the owner from the long-drawn process and high costs associated with claims. The coverage may also potentially allow projects to quickly get back on track by helping all the involved parties to overcome the challenges that can arise when the “ideal design plans” or field decisions create the “reality” of damaged construction.

Per the previous example, construction manger’s conduct caused the project to deviate from the approved plans and specs. The temporary retaining wall was well on its way to collapse. Subsequently, the cost to both construct the support beams and insert a new row of sheet pile, along with the job’s lost time could have been recovered through rectification coverage. This could also have allowed the project to get back on track without costly claim being made against the contractor. Oftentimes, there are a few steps an insured might need to take before an insurer will pay the rectification coverage request.

Some insurers require the quick identification of construction damage and the cause to be shown as a likely wrongful professional act. Again, faulty work by the contractor will likely not be covered and is typically excluded. Second, insurers may also require the proposed repair and estimated costs to be reported directly to and then approved by the carrier. The failure to abide by either of these terms and conditions can result in the claim’s denial. Not reporting to the insurer and getting approval to move forward has, in my experience, resulted in numerous denials of coverage.

Here are several other examples of the situations that can benefit from this coverage:

  • During the construction of a multi-family residential property, the contractor’s construction manager rushed the concrete curing process. This included the improper maintenance of the environmental conditions and ventilation systems needed to manage the evaporating moisture and heat. As a result, mold developed and had to be remediated and rectified throughout the structure at a $1,000,000 cost.
  • Prominent structural and plumbing design errors were identified by the contractor after the work begun on a new apartment complex. A $2,000,000 rectification claim was made against the policy by the insured to cover the investigative costs needed to determine the extent of the problem and potential corrective alternatives, which included the project’s redesign by another firm and related construction work, such as the removal of concrete and steel as well as the replacement of the structure’s piping and sewer lines.
  • A year into a healthcare project, a general contractor discovered cracks throughout the structure’s upper floors. A thorough investigation determined that the coupler embedded in the concrete to accept the end of the reinforcing bar was designed to accept a different “head” or fitting. As a result, the rebar disengaged and moved, compromising the building’s structural integrity. The total cost to jackhammer the concrete and refit the structure with the proper fittings or couplers was more than $3,000,000. While the project was slightly delayed, there were no third-party claims.

As shown, errors and omissions do occur no matter the due diligence or best intentions. That’s why there’s no substitute for forethought. However, field decisions are made every day and must be carefully chosen and approved. Risk management strategies that ensure the proper precautions are in place before the project ever begins are beneficial for protecting against the myriad of challenges – but things happen in reality. This is particularly true in an environment that’s rapidly blurring the lines of responsibility as it increasingly shifts from design-bid-build to the latest design-build methodologies. 

The coverage examples in this article illustrate issues that could be addressed through an insurance policy of the type described hereunder. Insurance coverage depends on the specific facts of the claim in question and the language of the policy in question. The inclusion of an example here should not be interpreted as a guarantee of coverage.


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