FAQ Archives - Page 2 of 7

Certificates of Insurance: Why You Can’t Always Have It Your Way

By Lynda

Design professionals are often asked by their clients to sign contracts that include comprehensive—sometimes unreasonable—insurance requirements and indemnification terms. These are usually drafted with the goal of protecting owners, clients, contractors, or other project participants. But how does this work when the required coverages aren’t found in the commercial insurance marketplace?

Certificates of insurance (COIs)—which are also often requested in those professional service contracts—provide summaries or verification of current coverage, including policy effective dates, insurers, and certain policy limits. A certificate gives a snapshot to the requestor (usually known as the certificate holder) for informational purposes. It’s important to understand that in no way does a certificate endorse, amend, alter, or extend coverage; nor does it act as a contract. Certificates are often provided using a set of industry standard forms produced by ACORD (formally known as the Association for Cooperative Operations Research and Development), which indicate:

THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS ON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE REPORTED BY THE POLICIES DESCRIBED BELOW.

Issuers of COIs generally strive to accurately reflect the insurance policies that are in effect, but those who are relying on the forms need to keep in mind that it’s virtually impossible to summarize an insurance policy of over a hundred pages in a form that contains a few boxes. Adding to this, those who are issuing insurance certificates often struggle as they try to confirm in a COI that specific and detailed contractual requirements are—or aren’t—being met.

One common challenge is meeting a request that an insurer provide notice of a policy’s cancellation to the insured’s clients. To do so, the insurer would need to track all such requirements for all insureds for the duration of each contractual requirement—which may even be unspecified. With this in mind, ACORD made changes in 2010 to clarify that insurers’ notification duties are as defined in the insurance policy, not in the professional services contract.

Generally, courts agree that a certificate of insurance is not a contract. One fundamental reason is that no consideration—or payment—is given by the certificate holder to the issuer. However, there is a duty to make accurate representations within the confines of the overall system. To consider this, we’ll review a few recent cases interpreting the obligations for COIs and their issuers. Continue reading “Certificates of Insurance: Why You Can’t Always Have It Your Way”

Commercial Auto Policy Myths

By Lynda

Company cars. Employee drivers. MVRs. Hired and Non-Owned Auto Liability.

Commercial auto insurance is an important coverage for design firms, and it’s also a deceptively simple one. In a short article, a/e ProNet member Walker & Associates Insurance urges design professions to be “aware of the top commercial auto insurance myths. What you don’t know can cost you.” For example:

MYTH: Your insurance covers all employees driving company vehicles.

Many commercial auto insurance policies cover only employees who are specifically named on the policy. When in doubt, check it out before handing the keys to an employee. According to a recent study from the Insurance Research Council, after a period of decline, commercial vehicle personal injury protection claims are on the rise. Should your company vehicle become involved in an accident resulting in injury, expect to pay more to settle that claim if it’s not covered by insurance. — Read the rest of the Walker & Associates Insurance post here

You can find an overview of commercial auto insurance, along with other Typical Coverages for Design Professionals, on our website. If you have additional insurance-related questions, don’t hesitate to call your local a/e ProNet broker.

2015 ACEC Professional Liability Insurance Survey of Carriers in Engineering, Inc.

By Lynda

Design firms preparing to purchase or renew professional liability insurance ask the same few questions every year.

How will my professional liability premium be calculated? Will my professional liability premium go up? Should I change professional liability insurance companies?

One helpful resource to answer these questions is the 2015 Professional Liability Insurance Survey of Carriers, a report published annually by the ACEC along with a companion analysis in Engineering, Inc. that includes insight from insurance companies and other experts This year, the title of the article says it all: 2015 was “Smooth Sailing” for the professional liability insurance industry, and that means good things for architects and engineers.

“The ACEC Risk Management Committee worked with the American Institute of Architects, the AIA Trust, and the National Society of Professional Engineers to survey 18 carriers.” With construction spending higher than it’s been in years and expected to rise, the number of insurance companies providing professional liability insurance to architects and engineers is also growing. New markets increase the competition for more established companies, and keep rates stable, which means Eric Moore, President of a/e ProNet and Vice President of Moore Insurance Services, is optimistic.

“Nonrenewal is about the only reason Moore would suggest changing carriers” this year. “If you do see a claim, a carrier you’ve been with a few years is less likely to drop you, he says.”

Also quoted in the article are representatives from several of the top-tier professional liability insurance carriers, like a/e ProNet sponsors Travelers, Beazley, and Victor O. Schinnerer, as well as Tim Corbett of SmartRisk, a performance management consultant for the design and construction industry, who has written for a/e ProNet many times.

You can read a digital version of this article in the January/February 2016 issue of Engineering, Inc.

As always, if you have any questions about this report or the professional liability market, please contact your local a/e ProNet broker today.

Drones: Should Architects & Engineers use them?

By Lynda

They offer a bird’s eye view of construction sites. They provide breathtaking photographic opportunities for architects looking to showcase their work. And they’re fun to fly. However, while they may be intriguing tools for architects and engineers, drones open up the design firms that use them to many possibly unanticipated risks. These days, obtaining a drone is as simple as stopping at your local WalMart, but all drones are not created equal, nor are all drone pilots equally skilled and certified.

Victor O. Schinnerer’s Risk Management Blog recently offered an overview of this issue. Should your design firm use a drone in your administration of contracted services? Read on:

“Professional service firms have to be aware that the use of drones is not a simple transition in the process of observing the work on a project site. As with web cameras, drone cameras often produce far more images than are used in the evaluation of a project. If not properly denoted in a contract, the scope of the firm’s services could include the use of all the available images as part of the firm’s duty to observe and evaluate the project as part of construction contract administration duties.

“Additionally, while licensed drone operators are undoubtedly careful about having general liability insurance that protects others from their negligence in aerial activities, and follow the FAA’s rules and guidelines, many firms using drone photography are doing so as amateurs. Turning hobby activities into commercial uses is likely to be unlawful, dangerous, and uninsured.”

Continue reading Drone use can put firms at risk beyond their knowledge by Frank Musica

Document Retention: More Paper or Paper-Less?

By Lynda

Which is better, more or less documentation in your project file after the job is complete? Despite recent advances in technology, document retention has become a difficult, expensive and complex proposition. Computers have changed design professionals’ work flows and methods, greatly increasing efficiencies, but also exponentially multiplying the volume of data; e-mails, attachments, drawing revisions, text and voice messages, not to mention folks are still sending faxes and letters, actual paper ones. All of this adds up and can become an unmanageable mess, even for the best of us.

Making decisions now about which project documents to keep and which to discard is like trying to pick who will win the Super Bowl in the year 2024. You never know which ones will be the most important until you are right in the middle of a claim. Experience and common sense tell us that there are certain documents that, no matter what, are probably safe bets to come in handy down the road. You may also be required by law or contract to keep certain records for certain time frames.

This article will offer suggestions on those categories of critical project documents necessary to defend claims, and which ones are better off being discarded as a matter of course after project completion. The question ultimately is framed as “what to keep and for how long?” Of course, these are only suggestions, and you should discuss implementation of any document retention program with your chosen legal and accounting advisors in your specific jurisdiction. Further, this article only addresses retention of construction project documents and not corporate, HR or tax records.

“Age of Discovery”

Modern construction projects, with all this data, are subject to modern lawsuits. These lawsuits are conducted by increasingly younger, tech savvy and sophisticated lawyers who sometimes make the litigation more about the discovery effort than about the facts of the case. Parties are allowed to submit detailed and specific “requests for production of documents” once in the lawsuit, or issue subpoenas to non-parties. State and federal court discovery rules could require parties to turn over copies of all information they have in their possession related to the project. Continue reading “Document Retention: More Paper or Paper-Less?”

Federal Trade Commission Releases How-To Cybersecurity Guide

By Lynda

Design firms may not seem like prime targets for hackers, many of whom are after sensitive, personal information, etc., but this assumption can be dangerous for architects and engineers. Intellectual property must be kept secure, and the threat can come from outside hackers, as well as from employees.

As detailed in Schinnerer’s most recent issue of Constructive Comments, the “(t)he Federal Trade Commission (FTC) has developed cyber security principles in its Start with Security: A Guide for Business. The publication’s guidance is based on the FTC’s data security settlements. Lessons from more than 50 FTC cases show how companies can improve their cyber security practices.”

The guide breaks the strategy down into the following ten steps:

1. Start with security.

2. Control access to data responsibly.

3. Require secure passwords and authentication.

4. Store sensitive personal information securely and protect it during transmission.

5. Segment your network and monitor who’s trying to get in and out.

6. Secure remote access to your network.

7. Apply sound security practices when developing new products.

8. Make sure your service providers implement reasonable security measures.

9. Put procedures in place to keep your security current and address vulnerabilities that may arise.

10. Secure paper, physical media, and devices.

Access the PDF version of Start with Security: A Guide for Business here.

Risk of Misclassifying Employees vs. Independent Contractors

By Lynda

The appropriate classification of employees is a frequent source of confusion for design firms, usually coming up around the renewal of a firm’s Workers’ Compensation policy. It is an issue ripe with risk on an Employment Practices level. Recent court rulings in Arizona and Utah have resulted in construction firms paying hundreds of thousands of dollars in back wages, damages, and penalties.

As explained on the Schinnerer Risk Management Blog:

In an age of rising benefit costs and other constraints on the operations of professional service firms, some firms are turning to a range of tactics to reclassify workers to take them off the formal payroll and, therefore, lower their costs and administrative burdens. However, doing so may subject the employer to state and federal employment law fines and penalties.

All this is happening against the backdrop of a broader shifting of risk from employers to workers, who are shouldering an increasing share of responsibility for everything from health insurance premiums to retirement income to job security. While the future might present a model where everyone is truly an independent contractor and neither those actually providing services nor those using the services have any continuing or controlling interest in each other, such a situation does not currently exist and any firm that thinks it can avoid employment responsibilities, tax obligations, or employment practices liability needs to carefully consider alternatives to hiring workers.

Regulators and courts have increased their scrutiny of the relationship between business entities and independent contractors. Alleged misclassification of workers has been one of the primary battlegrounds of this shift, leading to high-profile lawsuits.

For decades, some professional service firms have shifted work from employees to independent contractors to cut their overhead and labor costs and, at times, to qualify for special government procurement assistance. Often, this has been accomplished by relabeling workers and slightly altering the conditions of their work. And some professional service firms have simply ignored regulatory and tax guidance and “informally” used the services of professionals and clerical workers as “consultants” or “leased personnel” or “temps.”

Now, however, businesses—including design firms and construction contractors—are turning to other kinds of employment relationships, such as setting up workers as owners of limited liability companies (LLCs) in an attempt to shield the businesses from tax and labor statutes. In response, some state and federal agencies are aggressively clamping down on such arrangements, passing local legislation, filing briefs in workers’ own lawsuits, and closely tracking the spread of what they see as questionable employment models.

Visit the Schinnerer Risk Management Blog to continue reading.

If you have questions about the appropriate classification of your employees prior to your next workers’ compensation renewal, contact your local a/e ProNet broker. We’re happy to help!

Insurance for Design Professionals vs. General Contractors

By Lynda

When it comes to the world of construction contracts, there is no one-size-fits-all solution regarding insurance. The Design Professional’s insurance policies cannot and should not anticipate the needs and risks of a General Contractor, for example. This comes up all the time at the beginning of contract negotiations. You can sidestep disputes further down the road if you understand the way your insurance policy and carrier will respond in the event of a claim. Here are a few Frequently Asked Questions:

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-consultants design E&O policy. The principal reason involves the “insured vs insured” exclusion found in virtually all design E&O policies. If the contractor believes he has a cause of action against his sub-consultant 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 would bring an action against the sub-consultant 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 errors & omissions policy covering their general practice.

Why would the General Contractor need Professional Liability coverage?

The General Contractor has the same “Vicarious Liability” for the negligent acts, errors or omissions of their professional sub-consultants 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 Sub-Consultant may not have sufficient insurance or their policy limits may be reduced or exhausted from other claims. The 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 sub-consultant, which excludes professional design activities and responsibilities.

If you had more questions about this common issue, call your local a/e ProNet broker.

Blog Love: Victor O. Schinnerer’s Risk Management Blog

By Lynda

Yes, we know. We’ve given them a shout-out before, but it’s well-deserved. Here’s an excerpt from their most recent post, an answer to a design professional FAQ:

Why are some words in your contracts capitalized and others aren’t?

I recently received a telephone call from a policyholder asking this question because of a minor issue that arose when the term “notice of award” was capitalized in the general conditions, but was not capitalized in the instructions to bidders. His attorney advised that “it could be argued” (a not-unusual term for an attorney to use when trying to interpret contract language) that since the term was not capitalized in the instructions to bidders that it was not the same as the written notice defined in section 1 of the general conditions. The policyholder advised that the issue of telephone notification vs. written notification had been resolved, but it got him thinking about the many terms in his contract documents that are sometimes capitalized and sometimes not and he wondered why.

Capitalized words by convention usually mean defined terms. For example, “XYZ Corporation (‘Client’) promises to….” allows the rest of the contract to use “Client” instead of the full name. The same applies to other defined terms. You define them and then use the capitalized word thereafter to differentiate it from common English terms interpreted as their common meaning.

Visit the Schinnerer RM Blog to continue reading…