When you’re getting started as an architect, it may be easy to imagine that architect liability insurance is unnecessary. You know that you are going to do a great job for your clients and always work carefully. Why would you need to insure yourself against things that are likely never going to happen?
This mindset could be one of the biggest blunders you could make. Liability claims are more common in business than you might realize, and not having adequate insurance coverage to protect yourself and your business could devastate you financially. Here are seven reasons that architects should consider insurance.
1. Mistakes can happen to anyone
The main reason to take out architect’s insurance is to make sure that you’re protected against possible mistakes that may occur in any contract you take on. Architecture is a precise art, and errors of just a few millimeter or a slight misreading of your plans could cause problems that will cost many thousands of dollars to put right.
Professional Liability insurance (otherwise known as E&O insurance) protects your business against claims of negligence, misrepresentation or mistake, as well as document or paperwork errors. If you don’t have E&O insurance in place it’ll be your company (or you personally, if working as an independent contractor) having to foot the bill to rectify your mistake or otherwise compensate the client.
2. Professional Liability covers other types of claims, too
Many architects mistakenly believe that Professional Liability insurance is only in place to cover catastrophes such as building collapse, but this is not the case. These policies also cover small mistakes (as already mentioned), as well as other events such as failing to deliver services, missing deadlines, and breaches of contract.
Additionally, an architect often has liability for errors made by contractors employed on their projects, even when fault may not lie directly with the architect. Claims can be brought over apparently minor incidents, or even ones that you feel you have no connection with. These can be just as costly to defend in court as claims where you are at fault. Professional Liability insurance removes the financial burden of paying legal fees resulting from such claims from you and your business, helping you keep working after the matter is resolved.
3. Architects face many different liability risks
While Professional Liability insurance can provide important protection to architects, these are not the only liability claims you may face as an architect. Working closely with clients means visits to each other’s offices, worksites, and other locations. If a client were to injure themselves on your work premises or you accidentally damaged their property, you could be required to cover medical bills or compensate them.
General Liability, also referred to as Commercial General Liability (CGL) or “slip and fall coverage”, is an insurance policy that can protect your business against bodily injury or property damage lawsuits from outside parties. For example, while inspecting work done on a project you accidentally break a pane of glass waiting to be installed. Your General Liability policy will cover the cost of a replacement so you don’t have to do so out of your own pocket.
4. Commercial leases may require you to be covered
As you start to build your architectural firm, you will most likely need to lease commercial office space. Many landlords will want to see proof of a General Liability insurance policy before they agree to lease their property to you. They will often want to see their name added to your policy as additional cover to help minimize their own liability risks. Without this type of insurance, the landlord could be liable for injuries occurring to clients, vendors, delivery people and other third parties visiting your offices. General Liability insurance will make sure that medical and legal expenses are covered in the result of an accident.
5. You may need protection when partnering with other companies
Architecture projects are often too large for a single company to take on, particularly for businesses just starting out. Many building projects employ numerous architects and designers working collaboratively. This is a good way to land business that you would otherwise miss out on, but you need to remember that you could end up facing liability for another company’s mistakes.
Professional Liability insurance could be invaluable in these circumstances. Before you embark on a partnership with another firm, check your insurance coverage carefully to see what it says about partnership ventures. Some specialist architect liability insurance policies may not provide all the cover you need.
Even if joint ventures are covered in your policy, you need to make sure that the partner firm is also covered. Otherwise you could end up facing claims on your policy for mistakes made by them, leading to extra work and higher premiums in the long-term.
It may be worth considering whether you and your partner firm(s) should take out a separate joint liability insurance policy for the duration of the project. If not, you might instead structure the project with one company taking the lead and the other employed as a subcontractor. However, if you go down this route, you need to be aware that if your company assumes the position of the lead contractor, you could still be liable for errors and omissions caused by the firm working as a subcontractor.
6. Architect liability insurance attracts clients
Professional Liability and General Liability insurance policies provide important protections for your business, but they also send an important message to potential clients. Knowing you have these policies not only to reassures clients that they will be compensated for any mistakes or accidents that occur, it also demonstrates that you are running a fully professional operation. Architect insurance shows you care about making sure that both you and your client are covered against missed deadlines, structural problems, disputes over errors and omissions, and other unforeseen events that might occur. It is highly unlikely that any serious client would consider employing you as an architect unless you can show a Professional Liability and General Liability insurance policy.
7. The benefits could outweigh the costs
It’s very tempting for a small architectural company trying to save costs to skimp on Professional Liability or General Liability insurance. It could be tempting to not buy these policies at all, especially if you’re just starting out and only taking on small jobs. However, this could prove to be a very costly decision.
However, if problems do occur, the cost of putting things right will almost certainly be far higher than the premiums you would have paid for insurance. Legal costs and settlements can run into hundreds of thousands or millions of dollars, depending on the severity of the claim. This could easily bankrupt you or your company if you don’t have the right insurance in place. Architect insurance can help cover court and legal expenses, as well as the costs of any settlement or judgements that are awarded to your clients.
All of the above should give you a good idea of the necessity of protecting your architecture business against the variety of liability claims you could potentially face. Find out more about architect liability insurance here.
*As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording. The information contained on this web page is general only and should not be relied upon as advice.