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.

 

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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.

PNN_1604Design 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”

PNN_1511In what attorney Brian Stewart calls a “disturbing trend,” more and more project owners design professionals to procure separate questionnaires from their insurance brokers. These “broker-verification questionnaires” are meant to re-state or re-affirm the limits, exclusions, etc. of the relevant insurance policies to the project.  If you’re an architect or engineer who has met push-back from your broker on this issue, our November 2015 issue of ProNetwork News explains why:

I:  The Problem with Broker Verifications

The use of broker-verification questionnaires has been a growing trend seen most commonly in the context of construction insurance… Historically, a broker has satisfied this requirement through the production of a certificate of insurance or, if necessary, a copy of the policies themselves which demonstrate that the insured had the applicable coverage.  However, a number of project owners have recently been refusing to accept certificates alone and are requiring brokers to complete a questionnaire and verification, with the understanding that a failure to complete the questionnaire will cost the broker’s client the job.

The increasingly frequent use of such broker-verification questionnaires raises a number of legal issues for the broker.  The first issue deals with the broker’s authority to interpret the underlying policy between the insurer and the insured and whether a broker has the authority to confirm in writing whether a specific policy meets the requirements, not of the contract between the Owner and the insured but rather the requirements contained in the broker-verification questionnaires.  The second legal issue deals with the effect of a conflict between the underlying policy and the language of the questionnaire.  Specifically, what is the legal consequence when a broker completes a questionnaire that potentially contains conflicting language from the actual policy?  Finally, this opinion will analyze what risks and liabilities a broker is exposed to when completing  a questionnaire that contains language that is in conflict with  or amends, modifies, expands, etc. the underlying policy.

II:  Principles of Contract

Insurance is a matter of contract governed by the rules of contract. Unlike the ordinary commercial contract where the parties seek to ensure a commercial advantage for themselves, an insurance contract seeks to obtain some measure of financial security and protection against calamity for the insured.

Being a voluntary contract, as long as the terms and conditions made therefor are not unreasonable or in violation of legal rules and requirements, the parties may make it on such terms, and incorporate such provisions and conditions as they would see fit to adopt.  The rights and obligations of parties to an insurance contract are determined by the language of the contact and the insurance policy is the law between the parties unless the contractual provisions are contrary to public opinion or law.

III:  Role of the Broker

An insurance broker provides a professional service for the insured, its client and goes to the insurance market to determine what policy or policies best fit the needs of its clients.

Relevant distinctions exist between an insurance agent and an insurance broker.  Whereas an agent generally represents a particular insurance company, an insurance broker generally represents only the insured. Consequently, an insurance broker owes a duty to the insured and not the insurer. Continue reading “The Down-Low on Broker-Verification Questionnaires”

drone

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

PNN_1310So, you’ve scored a new project! This is a shining moment. The road before you vibrates with the potential for creativity and ingenuity. You receive the contract in your email. Double-click. All you have to do is sign on the dotted line. Scroll, scroll, scroll. Insurance Requirements?

Oh boy. You’d better send this one over to your insurance broker for a quick review.

At lunch, you sketch ideas on the back of your napkin, dying to get started. Buzz! Your phone trembles on the table. It’s your broker and, sadly, she didn’t just give you two big thumbs up. Nope. Turns out, the Insurance Requirements include the following line:

Client shall be named as Additional Insured under CG 20 10 (85) or equivalent.

No-can-do. This endorsement is obsolete. But your new client wants it!  And so you’re face-to-face with the eternal and confounding Additional Insured Conundrum.

Does this scenario sound familiar to you? You’re not alone. The following excerpt from our October 2013 issue of ProNetwork News may be able to help:

The Issue

Recent court decisions and increasingly onerous client demands are creating substantial insurance related difficulties for design firms. This article will focus on the potentially hazardous and surprising consequences of adding clients and others as additional insureds to the A/E’s general liability insurance (CGL) policy(s).

A recent Illinois Appellate Court Decision illustrates this threat: Patrick Engineering Inc. (Patrick) v. Old Republic General Insurance Co (Old Republic). The basic facts are:

Patrick was retained by Commonwealth Edison (Com Ed) to provide engineering services in connection with relocation of utility poles. While working on the project, Com Ed smashed through an underground sewer in at least four separate locations. Subsequently, the local municipality, Village of Lombard, sued Com Ed alleging that it acted negligently. Continue reading “The Additional Insured Conundrum: A/E Firms Face a New and Potentially Growing Liability Exposure”

An Unfair Duty to Defend

pnn_unfairdutytodefendNo engineering project is without risk. Somewhere between the goal of designing the best bridge, building or water treatment facility and running a profitable business lurks the ever-present possibility of litigation. A legitimate disagreement can occur, a company can make a mistake, or a firm or government entity—or a member of the public—can file a lawsuit that forces the firm to defend itself and its work. “A lot of risks exist and they’re not necessarily related to the quality of the work performed,” says John Moossazadeh, a senior vice president at Kleinfelder in San Diego.

Engineering firms often take jobs that knowingly expose the firm to legal risk. But how much risk is too much?

That’s a question that more and more engineering and design firms are asking when confronted with contracts that contain controversial “Duty to Defend” language.

A contractual Duty to Defend provides that the engineering firm will pay for attorney’s fees and costs incurred in a client’s defense of a claim. Depending on the con-tract language and the governing jurisdiction, this duty may be immediate from the time the claim is made, and may exist regardless of whether the engineer is found to be negligent. Although basic indemnification and defense clauses are common, and they typically assign risk to the negligent party, a growing number of developers and agencies request—and, in some cases, demand—that the consultant or firm in charge of the project defend any suit or other legal action brought against the developer or owner, and sometimes even irrespective of whether the claim is related to the engineer’s services.

Duty to Defend provisions are therefore criticized because a consultant or engineer who signs such an agreement could be legally required to bear the cost of defending against any project-related claim, even when the claim has nothing to do with the services performed by the firm, and there’s zero evidence of negligence. “It forces engineers to take responsibility for far more than the work they’re being paid to do and what their insurance covers,” explains P. Douglas Folk, principal at Folk & Associates in Phoenix. Continue reading “An Unfair Duty to Defend”

pronetworknews201305This issue of ProNetwork News is meant to serve as a basic reference guide to the liability insurance coverages typically purchased by design firms.

Let’s start with a key definition.

CLAIMS-MADE vs. OCCURRENCE

Most liability policies are written on an Occurrence policy form. Coverage is triggered on the date of the “occurrence” (defined as an accident, including continuous or repeated exposure to substantially the same general harmful conditions, causing damage). A claim asserted against the insured may be brought well after the occurrence.

In contrast, professional liability claims are often brought many years after an alleged act, error or omission. Insurance companies had to evaluate their exposures and better determine the premium necessary to cover such risk, so the Claims-Made policy form was created. The coverage trigger is the date the claim is made, and coverage applies only to alleged wrongful acts that happened after the retroactive date of your policy. Once the policy is canceled or not renewed, all coverage will cease.

Today, virtually all professional liability policies are provided on Claims-Made forms. In order to establish coverage, three conditions must be met:

  1. a policy must be in place at the time a claim is made
  2. the “retroactive” or “prior acts” date on the policy must be dated at least as far back as the services giving rise to the claim were provided
  3. notice must be provided to the insurer within the policy term or during a specified grace period

The advice of your insurance advisor is essential when reviewing Claims-Made policies with respect to mergers, acquisitions, splits and retirement.

This has been an excerpt of the May 2013 issue of ProNetwork News. The newsletter goes on to deal with all types of liability coverage, including Professional Liability Insurance, Commercial General Liability Insurance, Owners and Contractors Protective Liability Insurance, Workers’ Compensation and Employers Liability Insurance, Umbrella Liability Insurance, Employment Practices Liability Insurance, Directors and Officers Liability Insurance, and many more! Download the full PDF version of the newsletter here. Continue reading “Insurance 101: The Things You Always Wanted to Know About Liability Coverage But Were Afraid to Ask”

insurance_policyMost architects and engineers are required to have General Liability and Business Property insurance coverage. The former shows up in most design contracts, while the latter is an essential part of a design firm’s office lease agreement.

Needless to say, we get several common questions regarding these coverages:

What is General Liability coverage? What is Business Property coverage? What’s the difference between these coverages/policies and a Business Owners Package (BOP) Policy?

In an effort to demystify some of the concepts and to provide a quick reference a/e ProNet gathered some of its finest insurance minds and put together this basic manual: Insurance 101 for Design Professionals. This is not intended to be an exhaustive source of information but rather a primer designed to answer basic questions and to put the reader on the right track if more information is needed. a/e ProNet strongly recommends that the reader seek advice from an agent or broker specialist who is best equipped to understand the exposures to loss of each individual design firm.

The following is an excerpt from our Insurance 101 page, specifically defining General Liability, Business Property, and Business Owners Package (BOP). Access the full set of policy and coverage terms on our website.

COMMERCIAL PACKAGE AND BUSINESS OWNER PACKAGE POLICIES   

Insurance companies will combine frequently requested coverages under one economical package known as Commercial Package Policies or Business Owners Policies (BOP). One policy is designed to include among other coverages:

  • General Liability
  • Commercial Property
  • Non-Owned/Hired Automobile
  • Valuable Papers and Records
  • Business Interruption/Business Income Equipment Breakdown
  • Accounts Receivable

BOPs tend to be prepackaged policies available to smaller firms with little flexibility (other than limits) on available coverages. Commercial Package policies are offered to larger firms and provide a wide range of coverage options. Insurance companies that offer these policies to design professionals may require the insured to maintain professional liability insurance as a prerequisite to obtaining a package policy. Continue reading “Insurance 101: General Liability, Commercial Property & the Business Owners Package Policy”

A Good Time to be An Architect

Is it finally a good time to be an architect? We saw this question posed recently by ChicagoBusiness.com and, like many of you, we were excited to know the answer.

“I think there’s optimism—a very guarded optimism, given where we’ve been over the past four or five years,” says Scott Sarver, principal at Chicago-based SMDP LLC, which hopes to latch on to the better economy here, boosting its billings from domestic projects to 50 percent this year from 25 percent in 2012.

Among industry giants, San Francisco-based Gensler plans to add 50 professionals here through next year, to 273, says Nila Leiserowitz, a managing director in the Chicago office.

The pool of new architects is rising, too. Architecture schools awarded 10,252 degrees in the 2011-12 academic year, up 13 percent from 9,073 degrees in 2008-09, according to the National Architectural Accrediting Board.

Things a looking up. And if the “industry giants” are hiring to meet the increase in project opportunities, it’s also probable that seasoned professionals will take this chance to open their own shops. We hope so! Continue reading “A Good Time to be An Architect”