FAQ Archives - a/e ProNet

Benefit from Selecting the Right Professional Liability Broker

By Lynda

For design professionals, finding the right insurance broker can present a challenge. You need someone with ample experience handling the professional liability needs of architects and engineers, and who offers a wealth of value-added services. Only if your broker has a comprehensive understanding of what you and your firm are all about can he or she be of real use to you. Lacking this knowledge can leave your firm vulnerable in a shifting insurance marketplace. A good specialist broker is committed to investing the necessary time and resources to your account. They find you the best coverage for the best price, and they save you the considerable time it would take for you to do so on your own.

What is professional liability insurance and why is it important?

A professional liability (errors and omissions) insurance policy provides coverage to defend and indemnify a professional firm against claims alleging negligent acts, errors, or omissions in the performance of professional services.

Any project can give rise to a claim. Even if your firm employs an excellent risk management strategy, it is vulnerable to being named in a lawsuit. The cost of that defense can mount fast, even if your firm wasn’t in the wrong. A professional liability policy covers the cost of defense.

In the event that your firm is found negligent, and that the firm’s negligence gave rise to the claim in question, your professional liability policy will cover your firm for the damages you’re

legally obligated to pay, up to the policy limit. (Note: In most cases, defense costs erode the policy limit. Having adequate limits to cover both defense and indemnity is important.)

Why do I need a specialist insurance broker? Shouldn’t I be able to purchase my professional liability policy directly from an insurance company?

For architects and engineers, maintaining an active and adequate professional liability insurance policy is very often a legal requirement. And while a basic professional liability policy is straightforward enough for anyone to acquire, the insurance needs of design professionals are more complex than that.

The insurance industry is full of companies who want your business, but no two professional liability insurance carriers are exactly alike. Among the major differences are:

the size of policy limits offered;
whether multiyear policies are available;
underwriting appetites for types of engineering services;
and claims service.

Some companies require a 10-year loss history from design professionals, while others only require a five-year loss run. A specialist broker knows what the markets are doing, who the underwriters are, and how to present your firm in the best possible light. He or she will have understand each insurance company’s application and is quick to assist you in providing requested information. The cost of your insurance depends on this knowledge and attention to detail used on your behalf.

Here it should be noted that insurance companies often reward longevity. If your firm has been insured by a single company for a number of years and doesn’t have an especially adverse claims history, it’s likely that your premiums have been fair and endorsements (e.g., per project limit increases) have been easy to come by when needed. This does not mean that your current insurance company should be the only one to see your renewal application, however. A specialist broker understands the importance of approaching multiple markets periodically, either to reassure you that your policy is in the right hands or to grant you the opportunity to trade up.

Whether the market in a given year is hard or soft, a skilled professional liability insurance broker’s experience will benefit your firm. You need competent advice from a broker with the right perspective, both on your industry and the needs of your firm, as well as on the insurance marketplace as a whole.

This has been an excerpt of the January 2017 issue of ProNetwork News. Download the full free PDF version of Benefit from Selecting the Right Professional Liability Broker here.

About the Author

Audrey Camp is the Web & Social Media Consultant for a/e ProNet. She spent six years with a/e ProNet member IOA Insurance Services in California as a licensed account manager, specializing in the professional liability needs of architects and engineers. Today, Audrey works as a freelance writer living in Oslo, Norway. Her work has appeared in several literary magazines, journals and anthologies, and she is a founding member of the Oslo Writers’ League (OWL). She has also written for English-language Norwegian news sites and magazines. Most recently, Audrey co-authored two books—Startup Guide Oslo (Oct 2016) and Startup Guide Vienna (March 2017)—for a Danish company called Startup Everywhere, a process that inspired her appreciation for social entrepreneurship and intrapreneurship. Audrey has managed the a/e ProNet website, blog, social media presence and other publications since 2011.

Indemnity Relief Coming to California Design Professionals

By Lynda

On April 27, 2017, Governor Jerry Brown signed Senate Bill 496 (“SB-496”) into law. SB-496 will significantly lessen the burden of indemnity provisions and the dreaded immediate duty to defend in both public and private contracts with design professionals. Efforts to obtain passage began several years ago and were spearheaded by the hard work of the American Council of Civil Engineering Companies, California Chapter (“ACEC-CA”) with the support of American Institute of Architects, California Chapter (“AIA-CA”), as well as member firms. Collins Collins Muir + Stewart LLP was involved with both ACEC-CA and AIA-CA in assisting with pushing the bill through.

Authored by state Senator Anthony Canella (R-Ceres), SB-496 significantly expands Civil Code section 2782.8 protections to add private contracts entered into by design professionals after January 1, 2018. Importantly, SB-496 limits the “duty to defend” to the comparative fault of the professional which puts both private contracts and public contracts on equal footing.

What does this mean in practical terms?

For all private contracts entered into by a design professional prior to January 1, 2018 (meaning those contracts without the protections of SB-496) that contain a provision obligating the design professional to indemnify and/or defend their client, the design professional could be on the hook for all of their client’s attorneys’ fees and costs by virtue of being sued, even if the design professional was ultimately found not to be at fault. For private and public contracts entered into after January 1, 2018, with the protections of SB-496, if the design professional is found to be 25% at fault, then the law provides that they would only be liable for 25% of the fees and costs of a party seeking contractual indemnity and defense reimbursement. If found 0% at fault, they would not be responsible for any of their client’s attorneys’ fees or costs.

Currently, there is no way to insure to cover the costs and exposure created by an immediate “duty to defend” provision because, though professional liability insurance is available to design professionals, it only covers damages that result from a design professional’s negligence. This bill is a fair compromise because it protects against the design professional’s uninsurable first-dollar defense indemnity obligation while allowing a client the ability to recover those costs and fees tied directly to the percentage of fault. Assuming the governor signs the bill which is expected, this is a big step in protecting design professionals from the harsh impact of indemnity provisions in future public and private contracts.

About the Authors

Justin D. Witzmann

Ryan P. Harley

Nothing contained in this article should be considered legal advice. Anyone who reads this article should consult with an attorney before acting on anything contained in this or any other article on legal matters, as facts and circumstances vary from case to case. This post was originally published as a newsletter by Collins Collins Muir + Stewart LLP in April 2017. It has been reposted with permission.

Copyright Rights and Wrongs

By Lynda

Copyright Definition Copyright seems like a rather lofty notion. Few put copyright at the top of their list of must-haves in contract negotiations, and even fewer take the time to actually register their documents for copyright protection. But you do have copyright protections under current law. That copyright can come in handy as a risk management tool as well as leverage in a fee dispute. Unfortunately, many design professionals give away their rights vis-à-vis their contracts without a full appreciation of the implications of their actions.

Copyright statutes have been on our books since the 1700s. The Copyright Act (Title 17 of the US Code) provides useful protection applicable to your practice by including pictorial, graphic and sculptural works, as well as architectural works, as copyrightable materials. Architectural works include drawings, models and the structure itself. “Arrangement of spaces and elements” are protected, but not “individual standard features.” Registering your architectural works creates a public record of the registration and is essential in an infringement action. It takes 30 minutes and $30 to complete. But even if you do not register your works, they are still protected unless you give those rights away by contract.

Copyright in Standard Design Contracts

Standard design industry contracts (e.g., AIA and EJCDC), keep the copyright with the design professional and provide for a limited license to the client/owner for use of the documents. That license is generally limited for use on the specific project only, and does not allow for transfer of that license to third parties. The design industry contracts also include an indemnity provision in the professional’s favor that mitigates risk should those documents be used or modified without proper authority. Most owner generated contracts, on the other hand, demand a transfer of copyright to the owner, and those terms are often agreed to by the professional, presumably because the professional is not fully aware of its rights or the risks involved in giving those rights away. Continue reading “Copyright Rights and Wrongs”

How to Avoid Invalidating Your Professional Liability Insurance

By Lynda

At a panel for the NC Bar Association Construction Law Winter Meeting, attorney Melissa Brumback and her colleagues discussed insurance issues for design professionals. One hot topic was the way architects and engineers can inadvertently invalidate their insurance by agreeing to overly broad contractual language. Frequently, this has to do with the standard of care. Melissa penned the following post for the NC Construction Law Blog, and we have reposted it here with her permission:

As most of you know, Errors & Omissions insurance (“E&O” coverage) is meant to provide coverage for mistakes you may make in performing your professional architecture or engineering services. E&O coverage is important to protect you in the event of a lawsuit because, as you know, no set of plans is perfect (nor is perfection the standard of care).

Be careful, though. Do not promise to provide a higher standard of care than the “professional standard.”

If you are asked to sign a contract that states you will use your “professional best,” “best efforts”, “highest care” or similar, you are being asked to sign something that could cost you your E&O coverage.

Examples of such language:

[Architect] [Engineer] shall perform the Services in accordance with the highest standards of professional competence in the industry.

[Architect] [Engineer] shall exercise a high degree of care and diligence in providing the professional services.

[Architect’s] [Engineer’s] services shall be of first class quality and free from defects.

E&O policies cover you for failing to meet professional standards, but not in cases where you agree by contract to provide a higher/better/best standard.

Explain the risks in such language to your owner clients. No owner will want to put your insurance policy in jeopardy, and they should be willing to strike or modify that language to ensure that your work on the construction project is fully protected and covered by your E&O policy.

Some examples of coverable standards:

All services to be performed shall be performed in a manner consistent with that level of care and skill ordinarily exercised by members of Designer’s profession.

All services shall be performed in a manner consistent with that level of care and skill ordinarily exercised by members of Designer’s profession currently practicing in the location of the project for which the services are rendered, or similar locations.

Remember this, and make sure your future construction contracts contain favorable language that will actually be insurable. You know–the whole reason you have professional liability insurance in the first place!

About the Author

Melissa Dewey Brumback, who blogs at www.constructionlawNC.com, is an attorney at Ragsdale Liggett in Raleigh, North Carolina, where she represents architects and engineers in risk avoidance, contract negotiation, and construction litigation.

SmartRisk Checklist Can Help Your Firm Shore Up Cybersecurity

By Lynda

Architecture and engineering firms are still learning how to cope with a growing cybersecurity threat. According to this year’s Global Application and Network Security Report from Radware, nearly half of all companies experienced a cyber ransomware attack in 2016. Vulnerability to loss of personal data, exposure of sensitive or proprietary information, etc., is also on the rise. Tim Corbett of SmartRisk LLC, a longtime affiliate of a/e ProNet, has recently analyzed the report findings. He writes that the gravest irony is that while “Employees are the first line of defense” against cyberattacks, they are also a company’s “greatest cyber security weakness.”

Employees’ personal habits regarding company data and digital interactions open doors for hackers, viruses, and the siphoning of information. If your employees aren’t aware of basic threats and/or best practices regarding cybersecurity, your firm is more likely to lose out. The costs of these attacks can be severe. They are also avoidable. SmartRisk’s post recommends regular and up-to-date cybersecurity trainings for your firm “[t]o obtain a broad understanding, and buy-in from the entire organization.”

Arm yourself with SmartRisk’s Checklist

According to SmartRisk, cybersecurity training should take place annually. Corbett offers a checklist for these trainings. Remember to include “all members of the organization, including senior management… so they are knowledgeable of recent trends, monitoring methods, and controls used to prevent the installation of malicious code on the organization’s computer systems.” He also recommends making cybersecurity training a standard protocol for new hires. It’s probably a good idea, as well, to encourage your IT department to be accessible for even basic questions on cybersecurity. Demystifying the response to the threat will empower your employees to be proactive in protecting the company’s interests.

October is Cybersecurity Awareness Month, so you can find a/e ProNet’s past posts on related issues here:

Federal Trade Commission Releases How-To Cybersecurity Guide (Oct 2016)

Cyber Security Awareness & Last Week’s DDOS Hack (Oct 2015)

As always, if you have further questions, please contact your a/e ProNet broker.

Construction Contracts and Bankruptcy: The Ultimate in “Value Engineering”

By Lynda

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You have just learned that the other party to your contract has filed for bankruptcy. That party owes you money for past work and the project is not yet completed. This is a difficult and confusing situation that your firm might encounter.

In this Practice Note, attorney Jeremy W. Katz provides insight into the bankruptcy mechanism and the steps you might take to protect your firm’s interests.

A prime designer or lead contractor on a design/build project files bankruptcy. Can a design professional/consultant working under contract to the entity filing for bankruptcy protection pack up its gear and walk off the job site or stop work? Can the consultant enforce its mechanics’ lien rights against the real property’s owner? Can the consultant look to the bankrupt’s payment bond for payment? A bankruptcy filed by one party to a construction contract creates significant problems that put at risk the other party’s right to payment. When this happens, the non-debtor party to the construction contract should be ready to act.

The construction business is a volatile one, and it makes little difference if times are good or bad. Prime contractors, consultants, subcontractors, and property owners are constantly filing for bankruptcy protection. They can be huge companies, such as Washington Group, International, Enron, and PG&E, or they can be small mom-and-pop operations. But no matter how large or small the bankruptcy, creditors are likely to suffer, because rarely are they paid in full. All bankruptcies have a ripple effect; the goal is to keep the waves as small as possible. In order to best protect its interests, the creditor should have some knowledge of creditors’ rights and remedies. This knowledge allows the creditor to recognize, anticipate, and act upon issues that arise in a bankruptcy.

This article identifies some of the issues that arise when a bankruptcy is filed, as well as steps a design professional/consultant or subconsultant can take to protect its interests in the project contract. First, this article describes the bankruptcy process from a general standpoint. Second, it discusses specific issues related to the bankruptcy of owners and primes, whether they are design firms or contractors on a design build project. This article is not intended to be a comprehensive study of the topic, nor is it a substitute for a good bankruptcy lawyer. Its purpose is to allow a consultant to identify problems that may affect a construction contract when a bankruptcy is filed. This knowledge makes it more likely that the contractor will fare better than other creditors in the fight to be paid.

Download the full article–Construction Contracts and Bankruptcy: The Ultimate in “Value Engineering”–to continue reading the following sections:

How Bankruptcy Works – An Overview
Pending or Executory Contracts
Perfect Your Mechanics’ Lien Rights!
The Automatic Stay
Unauthorized or Preferential Transfers, or Having to Give Money Back to the Debtor

If you have further questions on construction contracts and bankruptcy, contact your local a/e ProNet broker. We’re here to help!

Cyber Security Awareness & Last Week’s DDOS Hack

By Lynda

Navigating your continuously connected life

If you used the internet last Friday, chances are you experienced a few problems. Twitter, PayPal, Spotify, Netflix and AirBnB were just a few of the major websites struggling throughout the day. News sites across the country, including The New York Times and The Wall Street Journal, had trouble, too. This was the result of a distributed denial of service (DDOS) attack, a brand of malicious hacking that the cyber security industry knows well.

A typical DDOS attack involves a hacker or hackers using malicious software to infect thousands of computers. They then control those infected machines to coordinate an attack, overwhelming a website with too much traffic until it crashes. Friday’s DDOS attack was more complex and more powerful.

First, the hackers didn’t use a mere “bot-net” of infected computers. They used millions of infected webcams, closed-circuit TV cameras, DVRs, routers… the so-called Internet of Things.

As NPR technology reporter Alina Selyukh explains:

“We’ve all been buying these new things, connecting them to Wi-Fi. Internet wonks will call this the internet of things. Experts have been warning that these things are never secure. This is the most visible example so far of what happens when hackers hijack a tremendous number of them.”

The other thing that set this attack apart was the target. Certainly, the major companies affected by the rolling attack throughout the day were targets, but it does not appear that any one of their websites was hit individually. Instead, the hackers targeted a company called Dyn.

“[I]t is the kind of company that sits between you and a website that you’re trying to access. When you type in a web address, it makes sure that you land exactly where you intended,” Selyukh told NPR. “And Dyn’s clients are some of the most popular websites and services out there.”

Friday’s events prove that technological innovation often advances faster than technology security. We’re all vulnerable when that happens.

National Cyber Security Awareness Month

October is National Cyber Security Awareness Month (NCSAM), an initiative created to bring awareness to issues like this one, and to encourage collaboration between government and industry to serve the American public. As part of the annual campaign, Stay Safe Online offers a collection of resources to educate and assist you in shoring up your own cybersecurity. These are useful both personally and professionally, so we hope you’ll check them out.

And for those interested in insuring against potential losses due to cyber risks, many top tier professional liability insurance carriers also offer cyber liability insurance for design professionals. Here are just a few:

PUA Cyber Liability Insurance

RLI Cyber Liability Insurance

Travelers Cyber Liability Insurance

Victor O. Schinnerer Cyber Liability Insurance

Keep those passwords strong!

Design Professionals and the Give-and-Take of “Standard Contracts”

By Lynda

The word standard implies many things. A bar to be cleared; a rubric to be followed. But for design professionals, the word becomes tricky when applied to contracts. Project owners often want to keep things simple by requiring so-called Standard Contracts for all parties. This is a problem for architects and engineers, especially from an insurance perspective.

Construction contracts cause problems for design professionals.

The following are a few Frequently Asked Questions we see from architects and engineers on this issue:

My project Owner insists on using their own contract for hiring my professional services. They are adamant this is a Standard Contract. How should I respond?

There is no such thing as a Standard Contract. Be sure to read each contract submitted by your clients carefully. You need to understand both the client’s expectations and your firm’s rights and responsibilities. It is a good idea to have all owner-drafted agreements reviewed by your attorney and/or insurance broker. This will help to determine whether you are accepting responsibility beyond what common law would hold you to in the absence of the agreement. If, for example, you agree to accountability beyond the protection afforded by your professional liability insurance, that’s a problem.

When I perform professional services for a Contractor in lieu of an Owner, should I be concerned?

Yes. Construction contracts are not meant to be used in this arrangement; they are not designed to meet the needs of the design professional.

What are some of the problems with using “construction contracts” for design services?

Construction contracts are problematic for design professionals. A General Contractor’s contract with a project Owner includes certain requirements (e.g. means, methods, procedures, sequences, safety, etc.). These requirements trickle down to construction subcontractors the verbiage of construction contracts. Beyond that, none of these requirements meet the test of what a design professional should required to do on the same job.

Contract document libraries available via the AIA and EJCDC can be a good place for design professionals to begin. These are standard in the sense that they are templates. However, it’s still important to seek individualized guidance from your attorney and/or insurance broker.

What are some of the other problems with utilizing “construction contracts” for design services?

Most construction contracts contain warranties/guarantees, and some have performance standards. To our knowledge, all professional liability insurance policies for design professionals exclude coverage for warranties/guarantees and (likely) performance standards. Remember: if you commit your design firm to more responsibility than the law expects of you, your insurance policy cannot protect you the way that it should.

We hope you’ve found this helpful. As always, be sure to contact your local a/e ProNet broker if you have further questions.

Demanding General Contractors and How to Meet Them Halfway

By Lynda

Some of the most frequently asked questions we hear are triggered by the disparities between the insurance coverage available to design professionals and the demands made for coverage by general contractors and their standard contracts.

This is a nuanced area, and you should call your local a/e ProNet broker if you have specific questions. In the meantime, here are a few quick answers to the biggest FAQs concerning this issue:

Is it wise of General Contractors to require professional subconsultants to sign their usual sub-contract form?

No. Contractors that require the use of the same contract form used for construction sub-contractors may unwittingly void the precise coverage they are seeking from their design professional. Professional Liability (Errors & Omissions, or E&O) policies for design professionals typically exclude warranties and guarantees, which are generally an integral part of construction sub-contracts. If the design firm “agrees” to the warranties and guarantees or any other responsibility excluded by their professional liability policy, the design firm will be assuming the defense costs and payment obligations if an award is granted by the courts.

The General Contractor has requested to be named as an “Additional Insured” on my professional liability policy. Can I accommodate this request?

It is not a good idea to name the contractor as an additional insured in the sub-consultant’s design E&O policy, because an “Insured vs Insured” exclusion exists in virtually all design E&O policies. If the contractor believes he has a cause of action against his subconsultant design firm, this exclusion will eliminate coverage for both the contractor and the design firm.

How can the General Contractor protect themselves?

The General Contractor may purchase Contractor’s Professional Liability insurance. This will protect the General Contractor from vicarious liability claims from third parties and also solves the problem of the “Insured vs Insured” exclusion that would apply if the contractor brings an action against the subconsultant design firm, when named as an additional insured. Another benefit is a separate set of insurance limits. The General Contractor would have their own set of insurance limits that would not be subject to dilution or reduction from other claimants against the design professional’s E&O policy covering their general practice.

Why would the General Contractor need Professional Liability coverage?

Several reasons:

The General Contractor has the same “vicarious liability” for the negligent acts, errors or omissions of their professional subconsultants as they do for the non-professional subcontractors.

The General Contractor cannot rely solely on the hold harmless indemnity clause in the contract document. The hold harmless may not be enforceable in certain jurisdictions because of the language of the indemnity clause.

The subconsultant may not have sufficient insurance or their policy limits may be reduced or exhausted from other claims.

The subconsultant’s policies may be cancelled by the carrier giving notice or for non-payment of premiums. The General Contractor is then left with a false sense of security if they rely on the general liability insurance of the subconsultant, which excludes professional design activities and responsibilities.

Meeting halfway, in this case, really involves helping everyone acquire appropriate coverage. If you are a General Contractor in need of Professional Liability (E&O) insurance, or if you are a design professional who needs someone to explain all this to a General Contractor demanding such ill-advised insurance/contract decisions, please don’t hesitate to call on us.

More answers to Frequently Asked Questions can be found on our FAQ page.