Inside This Article:
- A Washington state school district has sued a builder and architect over alleged defects that forced the closure of a new $18 million elementary school.
- Problems reported included electrical shocks, water intrusion, floorboard gaps, and other issues that led to relocating more than 500 students.
- The allegations highlight the importance of Construction Insurance policies including Architects & Engineers Professional Liability Insurance.
- Some policies exclude faulty workmanship and design errors, making it important for professionals to review their insurance coverage closely.
A school district in the state of Washington recently filed a lawsuit against a contractor and architecture firm after closing a newly built $18 million elementary school due to multiple alleged design and construction defects. According to the Tri-Cities Area Journal of Business, the Moses Lake School District is accusing Fowler General Construction of delivering improper and incomplete work at Groff Elementary School and Design West Architects of failing to administer the project or warn the school district about problems with it.
Problems reportedly started soon after the building opened in 2021, with court filings describing electrical shocks to staff, gaps forming between floorboards in the gym, a defective roof that allowed water intrusion, and improperly installed fire-suppression systems. The elementary school, designed to house more than 500 students and staff, was closed in April and students were relocated to several schools across the region.
“If individuals are being shocked, that is very serious,” said Steve Bartell, Senior Broker, Casualty, Burns & Wilcox, Brokerage Division, Chicago, Illinois. “The other thing that stood out here is the financial impact. If a school is deemed unusable, you have to think about where they are putting all of these students and the cost associated with that.”
If a school is deemed unusable, you have to think about where they are putting all of these students and the cost associated with that.
Fowler has reportedly denied the allegations and countersued the district, saying it followed project plans and alleging the district withheld payment and breached its contract; it is also suing many of the project’s subcontractors. Design West Architects declined to comment, the publication reported. These suits and countersuits are “pretty standard” for this type of dispute, Bartell said, and responsibility will ultimately be determined in court — but it will be important for all entities involved to have the right Construction Insurance policies in place.
“It can get really expensive for contractors and architects,” said Arran Auld, Broker, Professional Liability, Burns & Wilcox, San Francisco, California. “Even when they do everything right, something can still happen, disagreements can occur, and they can be sued.”
Even when [professionals] do everything right, something can still happen, disagreements can occur, and they can be sued.
The cost of design errors
Design errors represent a significant risk in the construction industry, with a 2024 global report from the Chartered Institute of Building (CIOB) estimating that design errors cost the sector about $85 billion annually. According to the Tri-Cities Area Journal of Business, the Groff Elementary School building was to be designed as a prototype that would be used to build future elementary schools in the district. That approach is one of many ways a design error can escalate in cost once it is discovered, Bartell pointed out.
“Generally speaking, when there is one construction defect and the same design is used again, it is likely other facilities could have the same issues in the future,” he said.
In the wake of any major construction defect allegation, determining which insurance policies may respond depends on the nature of the alleged error. Commercial General Liability (CGL) Insurance, for example, could respond to third-party bodily injury or property damage claims — such as staff at the school receiving electric shocks — but would not usually cover incidents related to design flaws or the cost of repairing a contractor’s faulty work, Bartell explained.
“All of the companies involved in a project should be carrying their own CGL Insurance policy, but there is no coverage for faulty workmanship,” he said. “That is where these contractors should be purchasing Errors & Omissions (E&O) Insurance.”
All of the companies involved in a project should be carrying their own CGL Insurance policy, but there is no coverage for faulty workmanship. That is where these contractors should be purchasing Errors & Omissions (E&O) Insurance.
These policies — often referred to as Contractors Professional Liability Insurance or Architects & Engineers Professional Liability Insurance, depending on the professional seeking coverage — are designed to cover financial losses resulting from a professional’s error, Bartell said.
According to Auld, “no two policies are the same” when it comes to this type of coverage. “You have to read each policy and understand what they are covering and what needs to be endorsed,” he said.
Avoiding gaps in Construction Insurance
Some insurance carriers offer multiline E&O Insurance programs designed for construction professionals, which can include enhancements like vicarious liability for subcontractors, contingent bodily injury, and coverage for faulty workmanship, Auld said. Many policies also include rectification coverage, which covers the cost of correcting a professional error before it becomes a lawsuit.
“If there is an issue with the work and they can rectify those mistakes to avoid a lawsuit, the insurance carrier could pay those costs,” he said. “That is a beneficial coverage for them to have.”
Additional enhancements may include brand protection or reputational damage sublimits, as well as coverage for withheld fees, which can help resolve disputes before they escalate, Auld pointed out. Contract review services and pre-claims assistance may also be included in some E&O Insurance policies, he said.
For large projects, some owners will opt for Owner Controlled Insurance Programs (OCIP), also known as Wrap-Up Insurance, Bartell said. “The general contractor or school district, for example, can buy one big insurance policy and all of the contractors involved pay into it,” he explained.
Managing long-term liability risks
Given the large scale of many public projects, coverage limits are a key factor in the construction industry, and many design and construction professionals need to carry Excess Liability Insurance in addition to their primary policies in order to obtain higher liability limits, Bartell said. “This was an $18 million school,” he said of the recent case in Washington. “Did they carry proper insurance limits?”
A serious injury or death related to an alleged design flaw could lead to a nuclear verdict, he added. “Are they properly covered to potentially have that kind of scenario occur? A construction specialist can help guide professionals in the right direction so they can protect themselves in the event of a serious incident or massive claim,” he said.
Construction defect claims frequently surface years after a project is completed — but contractors often mistakenly believe they cannot be held liable for damages at that point, Construction Dive noted in a 2021 report on the legal issues surrounding project failures. This can create a significant risk for contractors who cancel Professional Liability Insurance coverage once a job ends and do not purchase a Tail Policy, also known as an Extended Reporting Period.
“A lot of clients buy coverage for a project, keep it for a year, and then cancel it as soon as the project is over,” Auld said. “That is not best practice. If they do not maintain their policy or buy an Extended Reporting Period, they could have issues several years after project completion.”
A lot of clients buy coverage for a project, keep it for a year, and then cancel it as soon as the project is over. That is not best practice.
If they face a lawsuit years later, Auld said, “they could be without coverage.”
