Modular Design & Engineering — Risk Management Strategies & Insurance Considerations
B. Daniel Seltzer, CPCU, is a Senior Risk Advisor at RCM&D.
Thanks to the leadership of forward-thinking industry pioneers, modular construction has shifted from the margins to the mainstream. However, this shift in where and how construction occurs has introduced new — and often heightened — engineering and design risks. In today’s environment, these risks are compounded by interconnected digital platforms, proprietary designs, and delays caused by technology outages. If these risks are not proactively managed throughout the project lifecycle, the result can be significant financial harm to a company’s balance sheet.
There are no shortcuts: risk reduction and mitigation require Rigorous front-end planning and “future-proof” module design.
Key Engineering & Design Risk Mitigation Strategies
The following risks are, unfortunately, common in modular projects — and smart players deploy mitigation strategies early and often:
Dimensional Tolerance — addressed with 3D BIM coordination and strict quality control at all interfaces
Code Misapplication — prevented by conducting deep code reviews at project inception with the Authority Having Jurisdiction (AHJ)
Material Mis-Specification — avoided through comprehensive materials reviews
Permitting Delays — mitigated through early, proactive engagement with permitting bodies
MEP Integration Conflicts — resolved through a central clash detection study
Foundation/Module Mismatch — controlled via built-in tolerance buffers and predetermined “hold points”
Life/Fire Safety — managed with third-party reviews and early code consultant involvement
Internal Coordination — strengthened through operational alignment and effective inter-team communication
Rigging & Transit Failures — prevented by vetting logistics teams and requiring eye-sign-offs from multiple experienced professionals
Known Consequences — real consequences of Engineering and Design failures. Below are examples of actual legal disputes where alleged poor design and engineering in modular construction led to costly outcomes:
- Graphic Builders LLC v. RCM Modular Inc. (MA) — $1.8 million verdict. Defective units included non-compliant electrical and plumbing systems, misaligned exteriors, and leaking windows
- Global Modular Inc. v. Kadena Pacific Inc. (CA) — $1.07 million awarded. Water damage resulted from inadequate weatherproofing and improper protection during delivery and installation
- 330 Grand LLC v. Modular Steel Systems Inc. (NY) — Over $250,000. Incomplete design and engineering services led to failure to meet contractual obligations
- Burcher v. Custom Builders Express LLC (VA) — $1.71 million wrongful death judgment. A home was improperly fastened to its foundation, violating code and resulting in a fatality
- Centrella et al. v. Ritz-Craft Corporation (VT) — $94,262. Code violations and poor design led to elevated carbon monoxide levels and water intrusion
Professional Liability (Errors & Omissions) Insurance — What You Should Know
Professional Liability (also known as E&O) is one policy to be crafted by an experienced broker. Unlike Workers’ Compensation (statutory insuring agreement), no two E&O policies are the same. Six critical considerations:
✔ Customization — E&O policies vary widely. Coverage must match your operations precisely
✔ Application as Warranty — your signed application becomes part of the policy. Material misstatements or omissions can void coverage
✔ Exclusions Matter — review limitations carefully to avoid coverage gaps
✔ Limits & Triggers — know how your limits apply and when
✔ Defined Terms — policy words in bold are defined; know what they mean
✔ Ask Questions — your broker should walk you through all relevant implications
The structure of every E&O policy:
✔ Declarations Page — declares the Named Insured, policy term, premium, retroactive date, policy limits, and — most importantly — the definition of “Professional Services.” If all services are not reflected here, coverage may be void. You end up with a contract to an argument
✔ Insuring Agreement — “Subject to all terms and conditions of this policy, the Company will pay on the Insured’s behalf damages and claim expenses in excess of the deductible arising out of a claim first made against the Insured during a policy year, and reported to the Company in writing during that policy year, by reason of an actual or alleged act or omission including personal injury, in the performance of professional services, where such acts or omissions occurred or are alleged to have occurred on or after the retroactive date”
✔ Conditions — outlines Claims Reporting, Allocation, Cancellation, Subrogation, and more
✔ Exclusions — typically 20+, such as “Insured vs. Insured” claims, contractual liability, or trade secret disputes. Between the review of your application and the issuance of the policy, insurance carriers frequently place exclusionary endorsements onto your policy to protect their shareholders, not your company
The “Ifs” of E&O — Are You Covered?
✔ If you hire design-build professionals: consider Owner’s Protective Professional Indemnity (OPPI). If you’re unfamiliar, ask your broker why
✔ If subcontractors are involved: will your E&O respond to allegations tied to their work — or are you exposed?
✔ If General and Professional Liability are bundled: is there a shared aggregate limit and is this truly sufficient?
✔ If your policy is Claims-Made: know your retroactive date. Are current limits ($1M?) sufficient for work dating back to that time, since and going forward?
✔ If Defense Costs are within the limit of liability: understand how this reduces available indemnity protection
✔ If your policy has a “Hammer Clause”: Be sure you fully understand the implications on your settlement authority
Final Thoughts
In 30+ years of guiding firms through engineering and design liability, I’ve seen the modular industry grow more complex — and more exposed. It’s impossible to distill everything into one article, but I hope you’ve found this snapshot valuable.
I welcome your questions and conversations. Reach out to discuss how we may help you protect your projects and your business.
Call me directly at (215) 913-5355 or write DSeltzer@RCMD.com RCM&D, trusted since 1885.
More from Modular Advantage
Homes as Essential Infrastructure
The housing crisis is nothing new. Across the world, federal, state, and municipal governments of all sizes are struggling with how to provide more affordable housing—quickly—to those who need it. In Canada, Paul Halucha, Deputy Minister of Housing, Infrastructure, and Communities Canada (HICC), argues that the federal role in housing has shifted from funding at arm’s length to actively shaping outcomes.
Building the Future, Offsite
In the face of a national housing crisis, England stands at a critical inflection point where innovation, scale, and public-private partnerships must converge to meet an urgent need: more homes, and fast. Homes England is helping reshape the housing market by actively supporting MMC through a strategic blend of land development, financing, and grants.
How POJI and MOKO Are Industrializing Modular Construction Through Automated Engineering Systems
Working with Scandinavian Industrialized Building System (SIBS), POJI and MOKO helped realize a modular city concept located in Järfälla municipality of Stockholm, Sweden, with 350 apartments, communal areas, restaurants, small shops, and a preschool in a pleasant mix with experiential architecture and greenery.
Inside Boutique Modern’s Mission to Make First Homes Affordable and Efficient in The U.K.
The U.K.-based firm has been in business for 12 years, manufacturing houses for both private clients and local government, with a large chunk of its business coming from “affordable” and social housing. Working in a 32,000 square-foot factory in Newhaven, Sussex, Boutique Modern is changing decades-old thinking about constructing houses, all through the use of modular.
BoulderMOD: Producing Affordable Modular Homes While Training the Workforce of the Future
Colorado has been hit with a double whammy—a decline in the number of skilled construction workers and an increased need for affordable housing. BoulderMOD, a partnership among the city of Boulder, Flatirons Habitat for Humanity, and Boulder Valley School District, is tackling both problems and helping others do the same.
Guerdon: Seeking the ‘Holy Grail’ of Modular Construction
Guerdon, a modular manufacturer in Boise, Idaho, recently won what Laurence (Lad) Dawson, CEO and Managing Partner, describes as the ‘holy grail’ for a modular manufacturer. The RFP calls for a pipeline of six projects, totaling approximately 570
units.
State of Modular in 2025: Facing Reality
The critical and urgent reality is that the modular industry needs to open the doors to collaboration across all sectors. The sooner we stare down these challenges, the sooner we can welcome a new reality where modular is the dominant way to deliver housing for better performance, quality and all at a lower cost.
Modular Multifamily Housing as a Scalable Solution to the Housing Crisis
GreenStaxx provides a real-world, scalable solution through its standardized library of modular-ready multifamily designs and its innovative triple-decker model. Together, these offerings address the industry’s two greatest needs: efficiency and adaptability. By focusing on quality, repeatability, and collaboration, GreenStaxx is helping move modular construction from niche to mainstream and offering a practical path toward solving the housing shortage.
Sealed for Success: The Role of Waterproofing in Modular Construction
Water is one of the biggest threats to any building, causing structural damage, mold growth, and costly repairs if not properly managed. Waterproofing is the first line of defense, ensuring durability and long-term performance. As construction methods evolve, so do waterproofing solutions – moving beyond traditional coatings to advanced, factory-ready systems.
From Volume to Velocity: Scaling Multi-Family Projects Without Losing Control
When projects grow too fast without the right systems, factories run into problems. They miss deadlines, crews burn out, and quality drops. Instead of steady progress, chaos takes over. Things slow down, even with more units going through. That’s because building more isn’t enough—you also need to build smarter. That means shifting focus from volume to velocity.