Construction contractors who subcontract design work could take on more E&O liability risk: Chubb

Construction contractors involved in design-build projects take on additional professional liability exposure, while building information modelling software and employees storing data on wireless mobile devices can create cyber liability exposure, Chubb Ltd. suggests in a paper released Thursday.

“Under the design-bid-build process that has long been the industry standard, a project is designed by the architects under a separate contract with the owner, and then put out to bid for the construction phase,” Chubb stated in a paper, titled New Business Models, Technology Raise Professional Liability Risks for Contractors. “In contrast, the design-build process combines architectural, design and construction services under one contract to streamline and expedite project delivery.”

This combination of services means that construction contractors also take on “professional liability exposure for the work they perform themselves and for work done on their behalf,” Chubb warned. “By subcontracting design work, general contractors contractually become responsible for the liability associated with errors and omissions. For instance a mechanical subcontractor may provide some design work that could result in a professional risk that extends directly to the general contractor.”

The paper was written by Diana Eichfeld, assistant vice president, Chubb Environmental, and Matt Prevost, national product line manager for Chubb’s network security, privacy and technology errors and omissions products. Both are based in Philadelphia.

ACE Ltd. – based in Zurich, Switzerland – changed its name to Chubb Ltd. on completion Jan. 14 of its $28.3-billion acquisition of The Chubb Corp. of Warren, N.J. When the acquisition was originally announced, ACE said it would “continue to maintain a significant presence in Philadelphia, where its current North American Division headquarters is based.”

In the New Business Models report, Eichfeld and Prevost noted that mobile devices like tablets and smart phones “can contain significant amounts of sensitive data that may be more valuable than an individual employee realizes.”

Employees of construction firms “who use their own devices for work may download malware-infected third-party applications that search for sensitive information and create another risk for contractors,” the authors warned. “As one step in mitigating such risks, contractors should make sure that data is always encrypted during transit and that they can remotely wipe sensitive data from mobile devices.”

Cyber risk can also arise from building information modeling software, which “provides one overall model shared by the architects, designers, engineers and subcontractors – such as structural, electrical, mechanical, plumbing and fire protection – to coordinate the design and project delivery.”

However, electronic systems pose cyber risk because they contain building plans and sophisticated malware that targets computer-aided design programs has been identified,” Eichfeld and Prevost reported.

“Historically, contractors’ risk has primarily been limited to standard commercial general liability, auto liability, workers compensation and builders’ risk,” Eichfeld stated in a release Thursday. “Today, the risks are becoming more pervasive as contractors take on more aspects of project design.”