Professional liability policies cannot accommodate additional insured status for the client. No demand in a proposed contract will produce an additional insured endorsement affording coverage to a design professional’s client under the professional liability policy since the client has no insurable interest. The policy provides coverage for the liability of the design firm in performing professional services. Consequently, there is no direct connection between the risk being insured (the design firm’s performance of services) and the client.
Another important point is that the client is frequently the claimant. Professional liability policies do not pay to an insured party; they pay only for actual damages caused by the insured party’s negligently performed professional services. If the client were to be named as an additional insured, not only would there be no coverage to defend the client, but the policy could never pay for damages to the client caused by the insured design firm—insured versus insured claims are excluded from coverage.
When embarking on a construction project, the client wants to be certain it does everything it reasonably can to allocate risk to those in the best position to manage it. The best approach is to address individually the two principal liability coverages—general and professional. The general liability insurance policy covers claims arising from the design firm’s ownership of its premises and from its operations but excludes professional negligence. The professional liability insurance policy covers damages to others caused by the negligent performance of professional services. It is common for clients to request that they be included as additional insureds under a design firm’s general liability policy. The principal reason is that they wish to have the policy extend coverage to protect them from their vicarious liability arising from the design firm’s operations on their behalf. Most general liability insurers are prepared to add them as an additional insured with respect to their interest in the design firm’s operations. However, general liability insurance—where the investigation and settlement of a claim usually does not pose substantial conflicts of interest between the client and design firm—is entirely different from the nature and scope of professional liability insurance coverage.