What do service providers, EPCs and asset owners involved in 3D laser scanning need to know about assessing liability and insuring against risk? For service providers, technical challenges are not the only source of project risk. Professional and general liability play as great a role – arguably greater, since an uninsured or underinsured claim could put a company out of business and even bankrupt its principals. Key questions for service providers – what are your liabilities, and what constitutes appropriate and sufficient coverage? Meanwhile, EPC and owner contracts include terms and conditions that address liability, often apportioning some of it to subcontractors – here's some insight into what service providers face in insuring against this risk.
What's covered?
SPAR 2007 attendees got an in-depth tutorial on liability and insurance issues from two industry professionals – Jim Dalton, senior broker with U.S. Risk Insurance Group, Inc. (Dallas, Houston, TX, and Washington, DC) and Arthur Rayos, president of Rayos Insurance Agency (Houston, TX). They began by examining what constitutes "covered acts."
First, the distinction between professional and general liability is crucial. Professional liability insurance, often formerly called errors-and-omissions insurance, protects professionals against claims arising from negligent errors, acts or omissions in the performance of their professional services, Dalton notes. General liability insurance, by contrast, covers legal liability to third parties that does not arise from a professional's professional acts, errors or omissions; this commonly applies to exposure created by the premises or firm's operations.
So how do professional liability policies define what's covered? This is based on each policy's definition of the term "professional services," Dalton says. "This is the most important part of your coverage, because this defines what is serviced under the policy. Any specific area not included at the beginning will be excluded, so it's important to address any type of services that your firm will be engaged in at the very outset." Depending on the specific policy form, "professional services" definitions indicate that coverage applies to the types of services listed in the policy's declarations page, endorsements to the policy, or those services that the insured organization is licensed to perform. Dalton advises that the insured should make sure that all types of services they offer fit within endorsements or are noted on the declaration page of the policy.
What should service providers disclose to insurers?
Service providers we spoke with agree this is a critical point. Jason Matsumoto, president of Grenland AsIs North America, Inc., Houston, TX, observed that it's not difficult for a firm to obtain general liability coverage, as opposed to professional liability, for its laser scanning business – by failing to disclose its full scope of services. He notes it is possible for service providers to operate without proper and comprehensive coverage by disclosing only some of their services, generally less risky ones such as office processing. Of course, he says, "The problem pops up when you get sued for something not covered."
We also heard reports that some service providers choose to forego professional liability coverage under the argument that, in simply providing existing-conditions or as-is data, they are not "design-responsible." While that may be true, as Matsumoto puts it, "Try arguing the point when you get sued by a major offshore operator because their engineers designed and fabbed a $10 million assembly based off a bad set of scan data they took for granted was correct."
Additionally, for service providers that operate offshore and/or in plant environments, it's essential to disclose this fact before purchasing a policy – this will have a major impact on pricing of both general and professional liability coverage. Matsumoto reports this can drive up prices as much as tenfold.
