CONTRACTUAL DEFENSE PROTECTION – A NEW SOLUTION FOR THE OLD “DUTY TO DEFEND” PROBLEM

June 19, 2018

Design professionals often come across contractual language requiring that they indemnify and defend their clients.  This has long been a sticking point in negotiations, as professional liability policies typically exclude coverage for contractual liability.  How many times has an a/e walked away from a project, because the client is insistent on this point?  How many times has an a/e signed a contract obligating them to mount a defense on behalf of their client regardless of their own negligence, or lack thereof ?  A new product has hit the marketplace in recent months, aimed at confronting this risk head on.

From the June edition of the ProNetwork News we read, “Founders Specialty, Aspen Insurance and a/e ProNet collaborated on developing a new approach. This resulted in creating a new insurance policy that works in conjunction with the typical a/e professional liability policy. Basically, the policy covers the duty to defend obligation that the a/e agreed to in their contract with the Owner. There is no deductible, but instead the policy contains a coinsurance clause that splits the costs of defense on an 80%-20% basis whereby the insurer pays 80% of the costs and the insured pays the remaining 20%. The insured’s obligation however is capped on a per claim basis. The coinsurance amount is established by the size of the firm and is approximately 1% of revenues.”

About the Author

Stephen S. van Wert Stephen S. van Wert is the President of Founders Specialty, a Managing General Agent based in Tampa, FL that specializes in the development of innovative insurance solutions for professionals. Stephen graduated with honors from Duke Law, and has held executive positions with Brown & Brown and Willis, before starting Founders Specialty in 2016.

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