$5M Professional Liability (E&O) Insurance for Owner's Representatives

Owner's representatives who are asked for $5M in Professional Liability (E&O) by a hospital, university, investor or lender usually meet it with one primary policy or a primary plus follow-form excess layers.

What does a $5M requirement mean for owner's representatives?

Professional Liability (E&O, short for Errors and Omissions) can help when a client says your services cost them money. In a large owner's rep agreement, a $5M clause might read like this:

• Per claim and aggregate: see how limits are written.
• Claims-made: the policy covers claims made and reported while it is active, for work done after the retroactive date (the earliest work date covered).
• After completion: every layer usually renews, with the same retroactive date.
• Primary plus excess: if the clause does not mention excess, confirm with the client that primary plus follow-form excess meets the clause.

Who asks owner's representatives for $5M?

Owner's rep agreements often ask for lower limits such as $1M to $3M (see $3M for owner's representatives). $5M is a step up from $3M and sits below the $10M that some very large programs ask for (see $10M for owner's representatives). $5M tends to come from owners with large capital budgets:

• Hospitals and health systems building towers or surgical suites.
• Universities on lab or campus programs.
• Real estate investment trusts (REITs), pension funds and other large investors funding big new builds.
• Owners with construction loans, where the lender requires the limit.
• Public agencies and authorities (see government contracts).

How is $5M built?

A primary policy pays first. An excess policy pays only after the layer below it is used up. "$3M xs $2M" means a $3M layer sitting above the first $2M.

Each excess layer should follow form, meaning it adopts the primary policy's terms. Every layer should share the same retroactive date, policy period and named insured (the firm the policy covers). Many Professional Liability policies pay defense costs inside the limit, so a long dispute can wear down each layer (see defense costs inside or outside the limit).

Owner's reps may be offered a construction or project management professional form. If your firm designs or stamps work, you may need A&E (architects and engineers) professional liability instead.

What will underwriters ask for?

An underwriter decides whether to offer coverage and on what terms. Common questions:

• Construction value you manage each year, and your largest current projects.
• Whether you sign contracts, approve change orders or release payments for the owner.
• Whether you take on design or at-risk work, or guarantee a budget or schedule.
• The agreement requiring $5M and your standard contract, including indemnity wording (the clause that says who pays for losses).
• Five years of loss runs (a report of past claims), open incidents and your current policy.

What affects the cost?

• Project size and type. Healthcare, labs and high-rise work usually cost more to insure than office fit-outs.
• Authority over money and schedule. More control over payments, change orders and timelines may raise the price.
• How the $5M is built. Higher excess layers usually cost less per $1M.
• Claims history and contract terms. Clean history usually helps.
• Retention and defense terms. A retention works like a deductible. A higher one usually lowers premium. Defense outside the limit usually costs more.

Frequently asked questions

I carry $2M today as an owner's representative. How do I get to $5M?

You usually get there with a new $5M primary policy, or a new primary plus excess layers. Morrow can request quotes that aim to keep your retroactive date and prior acts coverage (coverage for past work done before the new policy starts) where the market allows. Report any known incident to your current carrier before switching.

Can my commercial umbrella cover the gap to $5M?

Almost never. A commercial umbrella usually excludes professional services. You usually need a higher primary limit or follow-form excess Professional Liability. See does an umbrella cover Professional Liability?

Can the owner or lender be named as an additional insured on my Professional Liability?

Not automatically, and it is often unavailable. Some carriers let an owner or lender be added as an additional insured, usually limited to liability arising from your professional services, and availability varies by carrier and layer. A certificate of insurance (a document that summarizes your coverage) only shows coverage. It gives the holder no rights under the policy. Some owners ask for one that lists every layer. Check what your client's contract requires.

How long does it take to put $5M in Professional Liability in place?

It can take weeks, because each layer may need its own underwriting. Complete documents up front may help.

This article is general information, not legal advice or a coverage determination. Coverage depends on the actual policy wording, carrier underwriting and your contract terms.