Professional liability insurance provides the type of coverage that protects both the architect's firm and its employees against any claims filed against it. These claims include negligence, errors, or omissions that may occur during an architectural project.
Other times, professional liability (PL) insurance is procured when the firm sees a similar-sized firm having to close its doors due to losses suffered in a court case.
Professional liability policies for architects are known as Errors and Omissions insurance policies (E&O policies).
PL (or E&O) coverage is different than that provided by commercial general liability coverage.
General liability insurance is not a requirement for every business and is not normally at the top of the to-do list when a small architecture firm is formed. Usually, the reality of needing this type of insurance comes as a client request upon award of a new project.
The number of professional liabilities claims for every 100 firms each year is a relatively low 15 to 21. When firms are initially starting up, they may overestimate the costs of specialty insurance or believe that the risks are too low to worry about.
In reality, these policies are quite affordable. These firms overlook the fact that specialized insurance covers all legal costs should a claim be filed. Ultimately, with the high hourly rates charged by law firms, legal assistance coverage can be the most attractive service provided by these specialty policies.
Architects can be held liable for the actions or inactions of those working on a project. Claims of negligence can arise from errors in cost estimates or any construction delays that can occur. Other legitimate claims can come from the planning or feasibility studies conducted before the architect was awarded the project.
Some clients will fail to pay, leading to the architect filing a lawsuit to collect monies due. It is common for clients in collection to claim negligence leading to a long legal battle. Some other specific activities that can lead to claims being filed can come from client expectations, architect scope of work, non-traditional practices, and a lack of communication. Professional indemnity insurance can help protect you against these claims.
Below we take a deep dive into each one of these 4 most common actions against architects that result in insurance claims:
Most professional liability claims are the result of the architect's failure to manage the client's expectations. Most clients have limited experience with the numerous components of construction projects which can lead to unreasonable expectations related to time and costs.
It is not uncommon for an architect to fail to divulge to a new uneducated client the exact scope of work related to the architect's responsibilities. This can lead to numerous misunderstandings of the timing leading up to the final project. Even when the situation is clarified, the client may be quick to file a claim against the architect.
In a bid to be innovative, young architects might choose to design their projects and custom build them as well. Since the architect is not technically a builder, their project might not be covered by traditional architecture insurance policies. An untrained builder could be an easy target for an unhappy client.
Many architectural projects can be an intricate juggling act of construction delays and cost overruns. Occasionally, an experienced firm that knows that everything will balance out in the end may fail to communicate some of the more minor issues. When the client learns of the omission, they may lose trust in the architect, which can result in legal claims related to a lack of communication.
The process begins with a lengthy application that the architect will fill out in detail. The information in the application will determine whether certain policies will cost more or less than others. Detailed information includes the type of project, the extent of coverage needed, claims history, use of standardized contracts, and internal organizational policies:
Some projects will need to have more coverage than others. For example, the construction of an apartment or condominium complex might leave an opening for lawsuits related to design flaws. A skate park will certainly have injuries from those who use it.
The difference in types of projects can also be illustrated by the different types of architecture. Building architecture projects are going to differ from landscape architectural services.
This is not just the claims history of the architectural firm itself, but the history of claims related to similar projects. If a project has an extensive claims history, the premium will be higher than a project with fewer claims.
Company policies related to training are not always included in the application. However, providing detailed documentation that proves that the company properly trains its personnel can bring the premium costs down.
The extent of coverage needed is determined by projects similar in scope and size. Some types of projects will have little to no claims against them, while others will consistently have many claims filed. Many architecture projects can be fully covered under a $1 million policy.
A traditional E&O professional liability insurance for architects will include coverage for personal injury, costs related to the defense of claims, negligence issues, and costs related to past-rendered services. An E&O policy is most valuable in services related to legal assistance coverage in defending any related case.
If someone is injured while on a site that was designed by a specific architectural firm, it is not unheard of for the injured party to go after the architects themselves. While many of these suits are not related to a specific flaw in the design, victims look to blame everyone for their injuries. With an E&O policy in place, the architects will be protected from personal injury costs.
Perhaps the most important aspect of the E&O policies is the coverage of costs related to legal assistance when confronting a claim. When a claim is filed, the architecture firm will need to consult legal professionals. If a case is drawn out over a long period of time, the legal costs can be overwhelming to a small firm. With this coverage in place, their portion of the legal costs is negligible in comparison.
Negligence can take many forms when it comes to architecture. An injured party might claim that there were inadequate plans or drawings for the project, negligent supervision during the construction process, negligent design advice, poor project management that resulted in financial losses for the client, or contractual disputes during the course of the project that might have cost the client unexpected charges.
Costs related to past-rendered services can occur long after a project has been completed. If, for example, a structural failure during a fire occurred, a party could attempt to hold the architect negligent for any loss of life or damages.
Estimated policy costs for an E&O professional liability insurance policy for architects are far less than many would think. The average E&O policy for architects is estimated to be $145 per month for a total expenditure of $1,730 per year.
Each policy covers an estimated $1 million per occurrence with an average deductible of $2,500.
When weighed against the potential legal fees, court costs, and settlement numbers, an E&O policy should be an early consideration for any architecture firm, no matter the size.
General liability insurance is essentially a requirement for any business to be covered by. This type of insurance covers the more common issues such as third-party injuries that occur in the workplace, damages brought by a third party on a job site, or theft at any of these related properties.
General liability insurance for architects is estimated to be approximately $35 per month for a total of $425 per year. Each policy covers an estimated $1 million per occurrence and carries a deductible of $500.
When you consider everything that can happen on an architectural project, the basis for claims and tendencies of a litigious society to file suits, the costs of both general liability insurance and professional liability insurance for architects should be incorporated into the budget early in an architecture firm's existence.
No matter how large or small your architecture firm may be or your architectural specialty, contact us today for free insurance quotes, and let us show you how to best protect your business.