All You Need to Know about Professional Liability Insurance for Architects

Architects contribute to the evolving American landscape in many different ways like designing a family’s dream home or building flashy city skyscrapers. Design professionals bid on many exciting and lucrative projects that can lead to tremendous success, as well as professional growth. Most of the top Architectural firms in the United States, like Gensler and Perkins+Will, earn ^[1], an average of $156 Billion annually from both domestic and international clients.

The opportunity to bring in large amounts of money may be one of the reasons why becoming a professional Architect is on the rise. According to archpaper.com ^[2], last year the number of professional U.S. architects increased to more than 115,000 while another 41,000 individuals are currently on the path to their licensing through the National Council of Architectural Registration Boards (NCARB).

It’s important to keep in mind crafting a structure can be an intense venture that goes beyond simply interpreting a client’s vision. Besides creating blueprints, the Architect is often responsible for other important tasks such as ordering materials, understanding zoning, securing permits, participating in inspections, and working closely with subcontractors.

With such a wide variety of responsibilities, you can see how something may be accidentally overlooked or a wrong decision could be made. That’s why Architect Professional Liability Insurance (also known as Architects Errors & Omissions Insurance) is critical to securing your future.

Below are a few of the most common exposures for Architects:

• Design flaws
• Going over budget or missing deadlines which causes the client financial damage
• Failed property inspections
• A client’s general disappointment with the final outcome
• Construction defects

Unfortunately, even the use of signed waivers or strict contracting language is sometimes not enough to ensure a design professional will be excused from claims of negligence.

For example, in the case ^[3] of Kleb v. Wendling, the court determined that design professionals are bound to report deficient workmanship and make sure it is corrected even when their contract specifies the Architect isn’t contractually obligated to do so. This means, for instance, if a design professional notices a roofer haphazardly installs low-quality shingles then the Architect is expected to resolve the issue on behalf of their customers. However, according to the Kleb v. Wendling ruling, simply pointing out the deficiency to the roofer so they can take care of it is simply not sufficient.

This is a perfect example of why, It’s critical that design professionals invest in Architect Professional Liability Insurance, aka Errors & Omission (E&O) Insurance. Not only will a Professional Liability for Architects policy help to vigorously defend your work in court, it will also pay your court fees and settlements should you lose.

For design professionals without Architect E&O insurance, the cost of fighting such a claim can be quite expensive. In fact, the average liability lawsuit^[5] will cost you anywhere from $3,000 to $150,000 to defend against. If the Architect loses their liability case, the out-of-pocket price will increase quite a bit because of court fees and final judgment amounts.

In fact, Architects E&O Insurance is simply another cost to doing business. The benefits of Professional Liability Insurance for Architects will far outweigh the minimal premium. Frankly, this type of insurance could one day save your professional stamp and keep you from losing all that you’ve worked so hard to establish.

Let’s look closer at the coverages Professional Liability Insurance does for Architects, how it works and what such a policy will cost.

What exactly is Professional (E&O) Liability Insurance for Architects?

Professional Liability Insurance for Architects protects designers and design firms that offer to customers professional services. Professional Liability is useful when an Architect or Architectural firm makes an unintentional mistake that causes damage to their client. This is very different from General Liability policies that cover claims like false advertising, slip and falls, and property damage.

What is the Difference between Architect (E&O) Professional Liability Insurance and General Liability?

It’s very important for you to know the difference between E&O Insurance and General Liability. If you already have a General Liability policy then you may falsely believe that ALL lawsuits or claims related to your business will be covered. Depending on the type of allegations being made against you or your employee, a General Liability plan may not be enough.

For example, if you own an Architectural firm and a client injures themselves during a visit to your office then your General Liability insurance will cover the eligible claim. That’s because General Liability is intended to protect your business against non-employee physical injury.

On the other hand, if your Architectural firm completes a design that violates the city’s zoning ordinance then you’ll want to utilize E&O insurance to cover the client’s claim of negligence. That’s because understanding zoning ordinances are part of your professional responsibilities.

What Will Your Architect Professional Liability Insurance Cover?

Professional Liability Insurance (aka E&O insurance) for Architects that includes standard coverages such as:

• Professional Liabilities
• Pollution Liabilities
• Technology
• Network Security and Privacy
• Advertising and Multimedia

Claims-Made vs. Occurrence Policies

First of all, the majority of E&O Insurance policies are written on a claims-made basis. In this case, a claim must be filed with the insurance company as soon as possible and within the current policy year. Also, if a liability claim happens before a retroactive date then it will not be covered no matter when it is reported.

If you do have a Claims-Made Professional Liability plan, you will want to be sure to keep your policy active with no lapses in coverage. This is because the effective date of your policy is also the retroactive date.

If you have any lapse in coverage, then you’ll lose your original retroactive date leaving you exposed to future claims. Also, if a claim is filed against you prior to the retroactive date of your policy then it will not be covered.

As an example of how claims made policies work let’s say your policy went into effective 1/1/2017 and ended 1/1/2018. To be covered, the date of loss would need to be between 1/1/2017 – 1/1/2018 and you would also need to file a claim with the insurance company during that same timeframe.

Occurrence policies are written and administered the same as your personal auto and home insurance. This means an eligible liability claim is covered if the claimant’s injury or damages happened during your policy period.

Related: Claims-Made vs. Occurrence Insurance Policies

What Is Not Covered?

By now you probably better understand what an Architect Professional Liability policy will cover so let’s move on to what it will not cover.

• Illegal acts
• Intentional malpractice
• Employment disputes
• Employee injuries
• Property damage
• False advertising
• Non-employee physical injury

Always refer to your policy documents to be sure of all the specifics when it comes to what is and is not covered under your particular liability plan.

How Much Will You Pay for Architect Professional Liability Insurance?

If you work for an Architectural firm, they most likely have an E&O Liability Policy that covers the business and all its designers. It’s very important to verify with your employer how much you are covered for, specifically the maximum limit.

If you are an independent Architect running your own small firm then you will have to buy your own Professional Liability Insurance for Architects. The premium you pay will be based on various factors such as the location of your business, the type of projects completed, your revenue, and the deductible amount you select.

For an independent Architect, the typical Architects Professional Liability Insurance policy premium usually starts from $1,500 per month.

As you can see, executing amazing architectural designs that serve humankind well is truly something special. However, the risks associated with being an Architect are varied and substantial.

One day you may encounter a nuisance lawsuit or perhaps you’ll simply make a mistake, either way, you’ll need to defend your reputation and protect your financial resources at the same time. Professional Liability Insurance for Architects will prepare you for this bump in the road.