Professional Liability Insurance for Architects, Engineers, Surveyors, and Consultants
Insurance is generally designed to protect the policy owner from losses due to accidents or other unforeseen events. This is easy to see in life insurance, auto insurance or fire insurance.
There is a special type of insurance that is designed to protect someone, or a firm, from allegations that the work performed was negligent. Originally, this type of protection was available primarily for professionals and had different names depending on the type of profession. For instance:
- Physicians and dentists are protected by malpractice insurance
- Attorneys and accountants are protected by errors & omissions insurance
- Architects, engineers and land surveyors are protected by professional liability insurance (also called errors & omissions insurance)
This type of coverage was, and still is, particularly important to professionals because, as professionals, they are personally liable for the professional services they rendered. There is no way to incorporate or organize to get away from this threat. But the professionals could transfer the risk to a third party in exchange for premium, and this third party was an insurance company.
Today, this type of policy is available to a much wider group of firms. Maloney & Company, LLC is proud to have among its clients not only architects, engineers and land surveyors, but construction managers, technical design firms (such as lighting designers and acoustical designers), construction companies (with a design professional on staff), expediters and code consultants, safety consultants and management consultants that advise building owners.
Here are some important concepts regarding professional liability and errors & omissions insurance:
1) Professional Liability Insurance provides for damages and defense costs from claims arising from real and alleged negligent acts, errors, or omissions which may occur as part of the architectural or engineering services. Design professionals may see either or both of two types of claims–Bodily Injury Claims, and Property Damage Claims.
Bodily Injury Claims -These types of claims allege injury to a person owing to faulty design of a project. It could be an injured worker on the job, an end-user, or a passer-by.
Property Damage Claims -These are typically claims by the owner, alleging extra costs that became necessary because of a design flaw. It could take the form of a demand for remedial work or a demand for money, and is by far the most common type of claim under a Professional Liability policy.
2) Limit of Liability – The limit of liability of your policy is the maximum the insurance company will pay for claims made during the policy term. It is a “per claim” amount as well as an annual aggregate, which means that while it is the most an insurance company will pay for the year, it can be used entirely on one claim if necessary. Your annual limit of liability is reduced by the amount paid out by the insurance company throughout the year, so if the insurance company pays a claim, you have the only remainder of that annual aggregate available for other claims for the year–it is a diminishing asset.
For example, if your policy runs from January 1, 2017 through January 1, 2018 and you have a $1,000,000 Limit of Liability, if the insurance company pays a claim for $250,000 in July, 2017 you have $750,000 left for other claims that were reported during the policy year.
3) Cost of Insurance – Although your firm’s entire profile is taken into account, it is your prior year’s billings that primarily drive the premiums. Typically we see premiums increase and decrease in proportion to the rise and fall of ratable billings. Other major factors include the type of services rendered, the location of the firm’s main office, and of course, the firm’s claim record.
4) Scope of Insurance – By far the most common type of professional liability insurance is called Practice Policy. This covers your design work on all projects for the year, unless a project is specifically excluded. There is another type of policy, called a Project Policy, but this is generally written only for very large projects in which an owner wants the entire design team to have coverage, and purchases this coverage for a period of several years for that one particular project.
5) “Claims Made” basis of insurance – Professional Liability for Architects and Engineers is written on what is called a “claims made basis.” This means that the claim must be brought to the attention of the insurance company during the policy period. For instance, if your policy period is January 1, 2017 through January 1, 2018 and on your first anniversary you choose to let your insurance lapse, if a claim is filed in February, 2018, there is no coverage, no matter when the work was performed or the incident occurred.