By: Bill Webb
When a general contractor or builder accepts a Limitation of Liability (LOL) be aware there may be insurance implications under the protective indemnity insuring agreement.  Contractor’s Protective Professional Indemnity (CPPI) forms often contain language that limits accepting a Limitation of Liability to available insurance proceeds.  While the Owner’s Protective Professional Indemnity (OPPI) policy requires notification of any LOLs agreed to by the Named Insured.  As protective indemnity is a first party excess coverage, both forms have a Minimum Insurance Requirement (MIR), the minimum amount of underlying insurance the carrier expects to be available.  If an LOL is agreed to below the MIR and is not identified, the insured may be responsible for paying the difference between the LOL and MIR before the protective coverage part will respond.  The protective insuring agreement is designed to indemnify the insured for damages they are legally entitled to recover.  Limiting recovery through an incorrectly worded LOL potentially restricts your insured’s coverage within their own policy.  Given the possible ramifications, it is important to advise insureds that accepting Limitations of Liability that limit liability to available insurance proceeds increases the chance of insurability and indemnity.