If your business involves building or designing buildings, then Architects and Engineers (A&E) Insurance is quite simply something you cannot afford to be without. It should also be carefully considered by general contractors, surveyors, and construction managers.
But what exactly is A&E insurance? Let’s take a closer look at these policies, the protections they provide, and why you should consider having a policy.
What is Professional Liability insurance?
Architects and Engineers (A&E) insurance is a form of Professional Liability insurance designed specifically for members of these occupations. It helps protect against risks common to the architecture and engineering industries.
Professional liability insurance for architects and engineers protects your business against claims of negligence, misrepresentations, or mistakes. Professional Liability claims are typically made by clients who allege some form of financial damage as a result of your services, products or employees.
Confusion sometimes arises as to whether Professional Liability insurance and Errors and Omissions (E&O) insurance are the same thing. For architects or engineers, Professional Liability insurance and E&O insurance are effectively the same things under different names.
What does Professional Liability insurance cover?
Many professionals may have General Liability policies, which provide coverage against personal injury or damages to property, but these policies will not cover you in the event of your having made an error.
Professional Liability policies provide coverage against certain types of liability claims. These policies can cover you against claims including negligence, accidents, errors, breaches of duty, misleading statements, or poor service.
Most Professional Liability insurance policies will include:
– Coverage for legal expenses: These policies provide cover for court costs, fees for attorneys, fees for mediation, and any penalty, settlement, or judgement found against you.
– Limited liability coverage: Liability should be capped in this policy to the maximum fee for the designer in some areas to prevent gaps in coverage as a result of any implied warranty or guarantee.
– Risk management advice: Many insurance companies may provide the opportunity to have contracts reviewed, will keep you informed about liability matters, and give other advice regarding the way that risk exposure can be mitigated.
What is not covered by Professional Liability insurance?
Professional Liability insurance for architects and engineers often contains a number of conditions excluding various claims. These include claims arising from: any intentional act; legal transgressions; claims made by one party insured by the policy to another insured on the same policy; acts of dishonesty; acts of criminality; employment liabilities; liability assumed by contract; and faults in workmanship.
Architects and engineers also need to know that there may be gaps in Professional Liability policies with certain types of projects. One of these is “design-build” projects, where architects and contractors work alongside each other throughout the entire project. This is a good way of getting building projects finished quickly, but this type of project is known as having a higher level of Professional Liability claims.
Another area in which professionals, particularly engineers, should be cautious is in the use of novel technological solutions. A lot of new technologies can be exciting and money-saving, but with unproven technology a tiny error in code could lead to disaster.
Finally, you also need to think about where you are operating. Different countries have different regulations for liabilities, and even if your policy states that it provides global coverage it may only pay out on liability as defined by US law.
Professional Liability claims examples
It is vital that all professionals should be aware that even when they have done their utmost to follow best practice, they may still be liable for damages. Below are some examples of the types of claims that may be faced by architects and engineers.
Scenario one: An architect designs a new school, but is unaware that the accessibility requirements for schools have recently changed and are now different from other public buildings. The architect must appear in court after the school is cited for code violations.
Professional Liability insurance protects architects against claims of negligence, even if they haven’t made a mistake.
Scenario two: An architect and a designer are working together on a project for a mutual client. The designer misinterprets the architect’s renderings and orders expensive materials which won’t work with the plans. The mutual client is upset and sues both the architect and designer for professional negligence, demanding that they be reimbursed for the unusable materials. The architect does not believe this is their fault, but they have been named in the lawsuit and must appear in court.
Professional Liability insurance will help cover the cost of an attorney and any judgements or settlements they are ordered to pay if they are found to be at fault.
Scenario three: An engineer’s design has a flaw. Because of this it is necessary for the builder to tear down his work and start over. The client sues the engineer for the cost of new materials and labor to rebuild the part of the project that is damaged by their flaw.
Professional Liability insurance will cover this claim up to the limits of liability.
Why do architects and engineers need insurance?
Legal liabilities for architects and engineers can extend for decades beyond the completion of a project. If you are an architect or an engineer you are not selling a product that has a shelf life, you are offering professional services and the consequences of any errors or omissions may only emerge years later. If they do, you will be highly relieved to have taken out A&E Errors and Omissions insurance.
Architects and engineers can find themselves on the wrong end of lawsuits for many reasons. These include (but are not limited to) making human errors, not providing services as per contract, misunderstanding or transgressing building codes, or not calling in expert help when required.
It’s only natural for every architect and engineer to believe that they won’t really need Professional Liability insurance. After all, you wouldn’t be in the profession if you believed yourself to be incompetent, would you? However, even the most expert and practiced architects or engineers can find themselves subjected to claims for errors and omissions or negligence. The right Professional Liability insurance policy will help defend such claims by paying legal costs, settlements and judgements if the case is lost.
Is Professional Liability insurance required by law?
The majority of states do not mandate Professional Liability insurance for those who work in the building industry, although federal law often makes it compulsory for any architect or engineer who wants to work on a government contract.
However, most companies and individuals putting contracts for design out to tender will demand that those they are working with have Professional Liability insurance. This generally applies to all types of projects including residential, industrial, or commercial. Increasingly it is the case that the law is somewhat irrelevant, as a professional will be unable to secure a contract without Professional Liability insurance.
Do I need my own policy if I work for an architecture or engineering firm?
Generally, companies in the architecture or engineering industries will buy a Professional Liability to cover all its workers. However, some companies may decide that this is an unnecessary expense. In this case, the individual architect or engineer may consider taking out their own insurance.
Obviously, any engineer or architect setting up a business for themselves will want to organize their own coverage to protect themselves and their employees.
Which Professional Liability policy should I get?
What type of policy you and your company require will depend upon your areas of specialization. The majority of engineers and architects tend to work on a range of projects and will want to choose a policy reflecting that range.
You may also need to consider the size of contracts you take on and your business’ annual revenue. The amount of Professional Liability coverage you ultimately need will depend on these factors, as you will want to be sure your business is adequately insured.
How much does Professional Liability insurance cost?
The cost of Professional Liability insurance varies. Insurance companies use a number of factors to help calculate the premiums you will pay, and your circumstances will likely be different from other professionals or firms (even those in your area).
Some of the factors used to determine Professional Liability premiums include, but are not limited to:
– Your annual revenue
– Business location
– History of similar claims
– Your risk management procedures
– The amount of coverage you need or want
In order to avoid the rising premiums that inevitably follow any insurance claim, it is best to try and avoid liabilities where possible. Always make sure your client knows what services they are getting and what you will not be able to provide them. Write everything down and always document every meeting. Have contracts written on AIA contract forms, and if there are difficult decisions to be made, ask the client to sign off on them and acknowledge that they have done so. If your client decides to complain, handle their complaint proactively, and have a mediation clause included in your contracts in case anything goes wrong.
However, no matter how careful you and your staff are, you cannot totally shield yourself against liability claims. It is essential that you have adequate insurance in place should they arise. Find out more about Professional Liability insurance for architects and engineers.