Do Professional Engineers Need Insurance?
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If you run or work in an engineering company, your tasks involve designing, measuring, building, and analyzing structures. Even when you have the best-laid plan, a single miscalculation can compromise the entire project. If you improperly design a building, and it causes property damage or puts lives at risk, you will face lawsuits. In case you are found guilty, such allegations are difficult to defend.
Sometimes, your subcontractors can make expensive mistakes, or bad weather or unexpected delays can affect your project. Other times, your client can sue you with the claim that the work performed doesn't meet the agreed-upon terms. For these reasons, engineers need a comprehensive insurance policy to cover such claims.
The engineering profession has a diverse range of risks. For instance, a miscommunication between the engineer and designers can result in purchasing the wrong, expensive materials that don't work for the project. Small mistakes can also create safety concerns, and you might even have to throw off the entire project or change the plan. Such errors can upset your clients, and they may choose to sue your company.
Even when you aren't guilty of the mistake, you will still have to spend a substantial amount of money investigating and defending your case. If you lack the necessary insurance coverage, the court can order the liquidation of your assets to compensate for damages caused, affecting your ability to stay in business. Here are various types of insurance coverage that engineers need to protect their practice.
Whether you own a small or big engineering business or a consulting firm, you need professional liability insurance. Keep in mind that mistakes are part of human nature, irrespective of how experienced you are in your job. Professional liability, or errors and omissions insurance, protects you against a lawsuit if a person sues you for damages caused by your professional wrongdoing.
Professional liability insurance will pay for attorney fees to defend a claim, settlement, and other miscellaneous legal costs within your limit. Keep in mind that this insurance option only covers mistakes directly related to your job, like:
Design error: You will get protection if a client claims that the design of your project is faulty. This insurance will also protect you if the project's design causes any form of personal injury or property damage. For instance, when a structural engineer makes a mistake in designing a building that later collapses or an electrical engineer designs a system that results in a fire.
Bad recommendation: An engineer can face a lawsuit if they offer the wrong advice or give misleading information. For instance, a client can sue you if you make recommendations that lead to financial loss or that causes damage to the building and other structures.
Failure to meet deadlines: Clients can sue you if you take too long to complete a project that causes temporary closure of operations.
Poor project management: If you fail to warn clients of potential problems with a project, this type of insurance ensures you're protected.
Although it's a type of professional liability insurance, professional indemnity insurance mainly covers claims against professional misjudgment. Note that engineers have a duty of care to many people including contractors, clients, members of the public, and consultants. If you breach professional standards, the affected people can file damage claims against you, but having professional indemnity insurance will protect you from the associated expenses.
If there is an injury or damaged property case connected with your firm, your general liability insurance will protect you from the expenses incurred. Sometimes, your employees can get into a fight with others from different companies, and your firm may face a libel lawsuit. General liability insurance will cover the compensation and legal defense costs.
All employees on-site are at risk of an injury. That means you need workers' compensation insurance to take care of medical expenses if an engineer in your firm becomes ill or injured while working. The insurance policy also covers the employee's lost wages during the recovery period.
Unexpected events like fire and heavy storms can damage your business premises and equipment. In such a case, if you have commercial property insurance, you will receive reimbursement. If you run your business in a low-risk area, you can go for the business owner's policy, which protects you from loss of income due to unexpected closure.
Equipment breakdown insurance covers you against equipment failure or malfunction due to electrical or mechanical issues. You can also seek umbrella insurance that protects you beyond the other policies' existing limits, especially if you have high-value assets.
Professional engineer insurance rates vary based on the policies you choose. Note that you shouldn't solely depend on the cost to decide the right policy for your practice. Keep in mind that with insurance, you get only what you pay for.
If you compare two quotes, look at the coverage of the one that seems cheaper. Most times, low-cost premiums have limited coverage. Consider the following factors to determine the right insurance policy for your practice:
Business size: The insurance company will consider the size of your engineering firm to determine the insurance premiums. The larger the firm, the more the people and the higher the chances of errors. Thus, you will need to pay a higher policy rate.
Claims history: The insurer will also review your prior claims. Severe and frequent claims will attract higher premiums than fewer or minor claims.
Your specialty: The nature of your engineering work and the corresponding risks will affect the policy rate. The insurer will analyze the potential risks in various industries' severity and claims frequency. If your project attracts expensive lawsuits, expect to pay more.
Project and assets value: If your company deals with large projects or has valuable assets, the risks are higher, and so are the insurance premiums.
Different types of insurance come with varying premium rates. On average, you can pay around $1,500 to $2,000 a year for engineers’ professional liability insurance. The estimated cost of professional indemnity insurance for an engineer is around $155 monthly or $1,875 per year. It has a policy limit of $1 million.
Workers' compensation insurance costs less than $50 monthly and around $600 annually. For the business owner's policy, expect to pay about $45 monthly and $550 annually with a policy. General liability insurance costs approximately $40 each month or $475 yearly, and the policy limit is $1 million.
It's worth noting that, in case the total expenses are $2 million, but the aggregate limit is $1 million, you will pay for the remaining $1 million. Therefore, it's important to choose an insurance policy with high enough coverage to protect your business entirely.
An engineer can be personally liable even when employed. In case of negligence, the affected party can choose to sue the firm or the individual engineer involved. In some cases, the employer doesn't have a legal duty to provide legal defense to individual employees if they get sued.
However, some companies choose to cover their employees with professional liability insurance. When you have this coverage, the insurer will respond to claims against the employees for negligence, omissions, or errors made in the scope of duty. In such a case, if the employer maintains high limits of insurance coverage, the insurer should provide adequate protection for both the firm and the employees.
If an individual employee feels like their services increase the firm's liability exposure, they can talk to the employer to increase the maximum coverage limits. Should an employer discontinue the employees' professional liability insurance, then the individuals could be exposed to liability. However, most professional insurance liability insurance covers the present, future, and current projects performed by engineering firms for claims made within the scope of employment.
If a firm shuts down and the employer no longer carries liability insurance, this exposes individual engineers to liability. It's therefore essential that individual engineers consider retroactive coverage to protect them from claims on former projects.
If you run an engineering company, your activities revolve around making the right decisions for your venture. One such decision is selecting the right insurance policies that will keep your business adequately protected in case of a lawsuit.
Engineers work on structures that hold many lives. If a building or bridge collapses due to faulty design, it can damage high-value property, causing injuries or even death. The affected people are more likely to sue you if they perceive that the mistake was an engineer's fault.
Luckily, professional indemnity insurance for engineers' errors and omissions can cover the hefty legal and settlement fees associated with the lawsuit. If you need advice about the right insurance policies for your engineering firm, reach out to us.