Architecture and engineering firms normally maintain professional liability insurance.
This requires payment of annual premiums based on the coverage provided.
Architects and engineers should maintain coverage in connection with their foreign operations as well as with their domestic operations. Various types of insurance usually carried by architects and engineers are listed in Table 2.1.
Services vs. Work
The building industry generally recognizes that the professional architect, engineer, or design consultant provides service, whereas the contractor, subcontractor, or material supplier provides work. In providing work, the contractor delivers a product and then warrants or guarantees the work. These distinctions are important to understand with respect to insurance. In the architects case, professional liability insurance provides coverage for the judgment the professional provides while using reasonable care and therefore does not normally have liquidated damages provisions.
Professional liability insurance does not cover the work itself or items undertaken by the contractor in pursuit of the work but does cover negligent errors and omissions of the architect or engineer. This insurance is a means of managing the risk associated with the architects judgment; it is not product-related. Most claims against professionals in the building industry are made by clients. Fewer claims are made by contractors and workers.
Risk Management
So that the architects or engineers business goals can be accomplished, professional liability insurance is offered through various underwriters and managed by professionals. Such professionals should not dictate or limit architectural practice, but rather should support it; neither should they tell architects to turn away from risk, but instead they should help manage it.
Insurance allows the architect or engineer to transfer the risk of financial uncertainty to an insurance company for a known premium. The professional should calculate how much risk to assume. The risk the individual retains is the deductible.
The risk the insurance company accrues is the limit of liability over and above the deductible. By choosing a higher deductible, the professional retains more risk but pays a lower premium.
Professional liability protection for the architectural and engineering profession has been designed with the help of the American Institute of Architects (AIA) and the National Society of Professional Engineers (NSPE)/ Professional Engineers in Private Practice (PEPP). In addition to errors and omissions coverage, the protection incorporates liability coverage for on-time performance, cost estimating, interior design, asbestos, and pollution.
Liability programs vary widely from company to company. In general, the insurance industry recommends that architects and engineers:
Select a program with flexible limits of liability and deductible options
Carefully review the insurance coverage
Compare competitive costs
Consider the insurance companys experience
Examine the insurance companys criteria for accepting risk
Compare loss prevention services
Assure that the company shares its loss information
The AIA and NSPE/PEPP can also provide architects and engineers with valuable information on what to look for in a professional liability insurance program.
Project Insurance
Project insurance permits the architect to be responsive to the client who has particular insurance demands. Suppose, for example, that the client wants 3 times the coverage the architect carries. Project insurance can respond to this requirement.
Project insurance costs are often reimbursable costs and considered a common element of the construction cost, similar to the cost of the contractors insurance coverage and performance bonds. Project insurance can sometimes reduce the architects policy costs because project billings are not included in the architects billings when the architects practice policy premium is calculated. Project insurance may provide long-term coverage guarantees to the day of substantial or final completion and up to 5 years thereafter with no annual renewals. Project insurance permits clients to take control in the design of an insurance package to protect their investment and provides clients with stability, security, and risk management.
