Solving the Insurance Challenge That’s Holding Back Integrated Project Delivery

By David Pacifici, CIC, CRM, RPLU 
Senior Vice President 
Berkley Construction Professional | a Berkley Company

October 13, 2026

Integrated project delivery (IPD) is gaining traction in the U.S. construction market. Under this model, the owner, designer, and contractor sign a multi-party contract, usually called the integrated form of agreement (IFoA), whereby they agree to share project risk and reward while waiving liability claims against each other. The owner establishes and funds the anticipated profit portion of the overall compensation to be paid to the teams’ designer(s) and contractor(s) to a shared profit pool, which may either be paid in full to the team’s members, or paid in a reduced amount (or even eliminated entirely) based on project performance. This profit pool is “at risk” and serves as the linchpin of the IPD delivery method. The alignment of financial results, which are based on a contractual agreement to share the consequences proportionately to each party’s portion of the at-risk profit pool, and without regard to which firm was individually responsible for the loss, creates a powerful incentive to solve problems collectively and deliver projects efficiently.

Integrated project delivery’s implementation of LEAN methods, such as a “Big Room” for Collaboration, Target Value Delivery and Pull Planning, is dismantling communication and operational barriers in the construction space, but there is one big problem affecting its adoption: traditional insurance structures have not kept pace. Conventional design-bid-build (DBB) and design-build (DB) policies were never created for the unique dynamics of IPD. As such, they leave critical gaps in coverage that can expose IPD teams to unnecessary risk. Here’s how we’re addressing that problem at Berkley Construction Professional. 

The limitations of rectification coverage 

In design-bid-build projects, the owner hires the architect and is required to provide the general contractor with a “constructible” design. The general contractor agrees to a defined scope of work for either a fixed stipulated price or a not-to-exceed price. If design gaps or changes arise, they’re billed as change orders and added to the contract price. The owner may seek to be made whole for those costs, or by additional costs that arise from the delays to the project schedule (which the owner may have sought to offset by spending additional sums to accelerate the schedule) by filing a professional liability claim alleging negligence by the architect or general contractor. 

In design-build projects, the general contractor typically hires the architect, meaning the contractor cannot pass the same design-related change orders to the owner; they can only charge for a narrow set of owner-initiated scope changes, or for issues arising out of site conditions. The general contractor as the design-build entity bears the risk for additional costs caused by design errors. They can try to recover those costs by filing a professional claim against the architect or engineer, but that often results in a long and arduous legal process. To address this challenge for general contractors (who are accustomed to be being made whole for the additional costs of design issues by projects completion and are not financially capable of waiting to be made whole by the resolution of claims against their design sub-consultants) insurers introduced rectification coverage, which allows general contractors to make a first-party claim for those costs directly to their own insurer.

When IPD started gaining in popularity, many insurers defaulted to rectification coverage as the answer to IPD risk. It made sense, as the limitation of liability clause in IPD contracts rules out the possibility of third-party claims, plus there are no insured-versus-insured or contractual liability exclusions. However, we’ve identified some real problems with this approach. For example: 
 

• Rectification coverage excludes overhead and profit. Under the IPD contract structure, the insurer has a clear basis to dispute coverage because the loss the IPD team is trying to insure is the reduction to the at-risk profit pool.
• Rectification coverage requires a wrongful act. IPD’s limitation-of-liability provisions prevent allegations or findings of negligence. An insurer could argue that no wrongful act has been established and deny the claim as a result.

Essentially, there is a misalignment between the insurance policy wording and a true IPD contract structure. 

The Berkley Construction Professional solution: indemnification loss coverage 

At Berkley Construction Professional, we drew on our extensive experience in the construction industry and marshaled our resources to develop indemnification loss coverage, which better addresses the unique dynamics of IPD. Here’s how it works:

• IPD contracts are built around an estimated maximum price. This includes the cost of work, overhead, contingencies, and a shared at-risk profit pool. If costs rise, they’re first covered by contingencies and then by the at-risk profit pool.
• Obtaining insurance to protect against a reduction in the at-risk profit pool helps IPD team members limit their financial exposure to a manageable level.
• This coverage indemnifies the IPD team—excess of a significant self-insured retention (SIR)—for reductions to the at-risk profit pool, as long as the loss comes from covered professional services. There is no coverage for nonprofessional issues, such as increases in material or labor costs. 
• Indemnification claims must be filed before the project is complete, the liability waiver expires, or the profits have been distributed. 
• Unlike rectification coverage, there is no overhead or profit exclusion, so those amounts can be recovered. 
• The deductible, or SIR, applies to the total losses combined, and not to each individual claim, capping out-of-pocket costs for the insured.

Here’s an example of how indemnification loss coverage responded to an actual claim: 
A large-scale IPD project with a target cost of $250 million suffered a costly professional error, forcing the senior management team to disburse $5 million in contingencies and $10 million from the at-risk profit pool. By completion, the final project cost had reached $265 million, exceeding the original target by $15 million.

Of that overage, $1 million was attributed to project escalation costs, which were incurred directly by the owner. The remaining $14 million included a significant indemnification loss, of which $6.25 million could be covered under the IPD policy after being substantiated. Once the IPD team met its $2.5 million self-insured retention (SIR), we reimbursed the remaining $3.75 million, restoring a portion of the profit pool.

Keep in mind that having indemnification loss coverage does not negate the need for professional liability insurance. In most IPD contracts, the limitation of liability stops applying after project completion or expiration of the warranty period. This allows the project owner to file claims against the IPD team for latent issues.

Supporting IPD 

At Berkley Construction Professional, our goal in offering indemnification loss coverage is to continue to innovate to support our policyholders, and to help accelerate and support the adoption of lean and true IPD construction. This coverage is a clear, practical solution to the risk concerns of both internal and external stakeholders. To learn more, feel free to reach out to me or any Berkley Construction Professional underwriter.

About the Author

David has more than 35 years of experience as an underwriter and licensed broker specializing in construction and design professional liability Insurance. For the past 25 years, his focus has been on providing professional liability insurance to real estate developers, construction contractors and design professionals. David specializes in developing innovative insurance solutions for large infrastructure and vertical projects. He provides strategic leadership and direction for crafting coverage to solve clients’ professional liability insurance needs for alternative project delivery methods such as integrated project delivery (IPD), public-private partnerships (P3) and progressive design-build. He frequently speaks about project delivery methods and their impact on risk allocation. Contact David at [email protected].