DBIA Insurance and Bonding in Design-Build — Questions and Answers
Question 1: In a design-build project, which type of insurance specifically covers claims arising from errors or omissions in the design professional's services?
- Commercial General Liability (CGL) insurance
- Professional Liability (Errors & Omissions) insurance (Correct answer)
- Builder's Risk insurance
- Workers' Compensation insurance
Correct answer: Professional Liability (Errors & Omissions) insurance
Professional Liability (E&O) insurance covers claims resulting from negligent acts, errors, or omissions in professional design services. CGL covers bodily injury and property damage but explicitly excludes professional services. Builder's Risk covers physical damage to the structure during construction, and Workers' Comp covers employee injuries.
Question 2: A performance bond on a design-build project primarily protects the:
- Design-builder against subcontractor default
- Owner against the design-builder's failure to complete the project per contract terms (Correct answer)
- Design-builder's lenders against project losses
- Surety company against owner payment disputes
Correct answer: Owner against the design-builder's failure to complete the project per contract terms
A performance bond is a surety instrument that guarantees the design-builder will fulfill its contractual obligations. If the design-builder defaults, the surety steps in—either completing the work or compensating the owner—up to the bond amount. The bond protects the owner, not the design-builder or its lenders.
Question 3: Builder's Risk insurance in a design-build project is best described as:
- A permanent property policy transferring to the owner at project completion
- A temporary policy covering physical loss or damage to the project during the construction phase (Correct answer)
- A liability policy covering third-party claims for construction-related injuries
- A fidelity bond protecting the owner against design-builder fraud
Correct answer: A temporary policy covering physical loss or damage to the project during the construction phase
Builder's Risk (also called installation floater) is a temporary property insurance policy covering the project structure and materials against covered perils—fire, wind, theft, vandalism—during construction. It expires at substantial completion when the owner's property insurance takes over.
Question 4: A payment bond on a design-build project guarantees that:
- The owner will receive any savings realized through value engineering
- The design-builder will receive timely payments from the owner
- Subcontractors and suppliers providing labor or materials will be paid (Correct answer)
- The surety will fund the design-builder's cash flow shortfalls
Correct answer: Subcontractors and suppliers providing labor or materials will be paid
A payment bond protects lower-tier parties—subcontractors, sub-subcontractors, and suppliers—ensuring they are paid for labor and materials furnished to the project, even if the design-builder becomes insolvent. It is distinct from a performance bond, which protects the owner against non-completion.
Question 5: Under the DBIA model agreement, professional liability insurance for the design services on a design-build project is typically the responsibility of the:
- Owner, because the owner ultimately owns the completed design
- Design-builder or its design subconsultant, consistent with single-point responsibility (Correct answer)
- Construction manager, who coordinates all trade work
- Surety company providing the performance bond
Correct answer: Design-builder or its design subconsultant, consistent with single-point responsibility
Design-build's defining characteristic is single-point responsibility: the design-builder is accountable for both design and construction. Accordingly, the design-builder (or its retained design professional) carries professional liability insurance. This alignment of risk and responsibility is a core DBIA principle.
Question 6: A 'combined professional liability and contractor's pollution liability' policy is advantageous in design-build projects primarily because it:
- Eliminates the need for performance bonds on federal projects
- Reduces coverage gaps and disputes between insurers when a claim involves both design negligence and resulting pollution (Correct answer)
- Allows the owner to waive competitive procurement requirements
- Transfers all financial risk to the surety company
Correct answer: Reduces coverage gaps and disputes between insurers when a claim involves both design negligence and resulting pollution
When design errors result in pollution-related damages, separate professional liability and pollution insurers may each argue the other's policy applies—leaving coverage gaps. A combined policy eliminates that 'finger-pointing,' providing seamless coverage under a single insurer for claims involving both design negligence and pollution consequences.
DBIA Insurance and Bonding in Design-Build
In a design-build project, which type of insurance specifically covers claims arising from errors or omissions in the design professional's services?