With the new year nearly upon us, we wanted to offer suggestions for new professional services firms regarding insurance. Here is an introduction to the types of policies normally maintained by start-up firms, along with some price estimate ranges, and other suggestions:
1) Professional Liability Policy-
This type of policy pays for legal fees and damage awards connected to an A/E’s design work. This coverage is important because an architect or engineer is personally liable for his or her professional services. There is no way to organize or incorporate to shield them from this responsibility. Fortunately, there are several programs geared toward small firms. Costs start at about $1,500 per year, and for new firms it is often wise to lock in a multi-year policy while billings or estimated billings are low and the firm is claim-free.
2) Business Owners Policy-(aka BOP)
This type of policy is actually two types of coverage in one, and is appropriate for almost any small business.
- a) The first part of the BOP is called property coverage. This protects you if your firm suffers a loss to physical property. Typically the property portion of the policy protects:
Business Personal Property such as tables, chairs, fax machines, coffee maker, computer hardware and software, printers, plotters, AutoCad, Valuable papers (such as sketches, specs, working drawings and the cost to replace them).
- b) The second part of the BOP is called general liability coverage (GL). GL is the primary type of coverage for a contractor, but many other types of firms refer to it as “slip-and-fall” insurance. For architects, engineers and construction managers it is actually used less often than the protection afforded by the professional liability or errors & omissions policy.
Frequently landlords and/or clients ask to be named on a tenant’s general liability policy as an additional insured. The landlord may fear that they will be named in a claim made by someone visiting the tenant’s office, or by a jobsite incident that has nothing to do with them, and they seek protection under the tenant’s policy. While it is good practice to resist “diluting” your coverage by adding many additional insureds to your policy, this request is fairly typical. Similarly if you sublet space to a tenant it is good practice to insist on being added to their general liability policy.
Costs for business owners policy for a small firm are likely to be $500-$1,000 per year.
3) Workers’ Compensation-
This type of policy covers employees for work-related accidents and injuries. It provides weekly cash payments and the cost of full medical treatment, including rehabilitation, for covered employees who become disabled as a result of a disease or injury connected with their employment. It also provides payments for qualified dependents of a worker who dies from a compensable injury or illness.
State rules vary for this type of policy, but frequently we see firms with no employees exempt form the requirement to maintain coverage. Costs are dictated by each state, so premiums should not vary much from insurer to insurer.
Overall suggestion: Getting things right at the start will provide a career of benefits. Find an attorney to help you prepare standard contracts (M&Co can introduce you to some of the law firms that have helped our clients over the years), find an accountant that can help you set up your invoicing system correctly and avoid bad tax surprises, and find an insurance broker that specializes is working with design firm. We at M&Co know how much value we bring to our clients, everything from prompt, knowledgeable service, to adding special endorsements to policies at no additional cost. And, if you find yourself in a sticky claim situation, having a knowledgeable insurance broker by your side can prove invaluable!