Insurance Archives - Page 2 of 6

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”

Are Hackers a Threat to My Design Firm?

By Lynda

Hackers make headlines daily with targets ranging from major Swiss banks to Minecraft users to German nuclear power plants. But what are the risks to architects and engineers?

Professional Liability carrier Victor O. Schinnerer urges design professionals to Take Cyber Liability Exposures Seriously in a recent blog post:

Cyber liability problems that have disrupted firm operations often are based on one of three vectors:

— insiders who are dissatisfied or recognize their ability to tap firm assets and use that access for harm or personal profit;

— past employees who either take digital assets with them or to enact revenge against their former employers corrupt firm systems and information; and

— hackers who know that confidential project data is vulnerable and hold digital information hostage until a ransom is paid.

Hackers Can Wreak Havoc on a Firm

Although internal threats cause many cyber liability breaches, a malicious outsider is one of the greatest fears of professional services firms. A hacker could cause data inaccessibility through alteration or destruction. A firm would lose intellectual property and no longer be able to meet contract objectives and deadlines. Attackers who gain access to a firm’s data can encrypt it using ransom-ware and extort payment to regain access to information. Firms that do not properly preserve digital assets through robust back-up systems often have no alternative but to pay the ransom.

Construction projects today are increasingly dependent on digital technology. The adoption of BIM and the increasing use of digital technologies in designing, constructing, and operating buildings and infrastructure are transforming the way the industry works. The concept of collaborative work through the sharing and use of detailed models and large amounts of digital information requires that parties be aware of vulnerability issues and take appropriate control measures. Improper access controls could lead to an attack severely disrupting progress on a project, causing delays or remedial work that could lead to significant claims from owners, lenders, or other stakeholders. And if confidential information on the structure or systems of projects is accessed by unauthorized parties, the safety of the owners and users of the buildings or infrastructure could be put at risk.

It is possible to insure against these vulnerabilities. Schinnerer’s Cyber Protection Package is one example of such coverage. Here are a few others:

Give your local a/e ProNet broker a call to discuss your options today.

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.

The Down-Low on Broker-Verification Questionnaires

By Lynda

In 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”

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?”

How Effective is Your Risk Management Program?

By Lynda

Many design firms attend risk management training sessions and implement certain practices based on an industry trend or project claim. Other firms may only concentrate on contracts and insurance coverage’s as a risk management strategy, which only addresses a portion of an effective risk management program. As they say – “you cannot manage something that is not measured.” With that said, the first question should be:

How effective is your risk management program?

An excellent method in answering that question is determining a design firms risk profile. Similar to how an insurance carrier underwrites and creates a premium for every design firm, each firm also has a different risk profile based on their unique characteristics:

• Background
• Staffing
• Experience
• Services
• Claim activity
• Project types
• Clients
• Geographic region
• Risk Management
• Business Practices
• Other features

Another way of thinking of a risk profile is similar to a physical examination performed by a doctor. The doctor will examine each individual in similar areas such as – blood pressure, blood work and physical evaluations in determining someone’s overall health. A risk profile does the same thing in assessing key categories of risk for a design firm. When I have evaluated “higher performing design firms” the first step they apply is an assessment. With this information, higher performers make decisions for improved performance and risk reduction to ensure effective practices are applied for meeting the business needs of the firm, clients, and projects.

Industry Risk and Relevance to Your Firm

One important point for managing risk is assessing the softer side of a design firms practice – business and practice management efforts. These areas routinely drive a majority of claims and litigation against design firms, approximately 60 – 75%. Do all design firms apply the same business and practice management efforts? Obviously the answer is no. Design firms apply various methods, techniques, practices, etc., with some more effective than others. With that said, a one-size fits all risk management approach is not very effective in addressing the specific needs of any design firm. Continue reading “How Effective is Your Risk Management Program?”

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!

Gearing up for EdSymposium15

By Lynda

Design firms depend on a set of very important people to keep their businesses running smoothly: office administrators. These folks “manage, market, advance, streamline, protect, and regulate firms in the A/E/C industry,” according to Natalie Newman, current President of the Society for Design Administrators (SDA).

At the SDA’s upcoming national meeting in Golden, Colorado–EdSymposium15 (October 8-10, 2015)–a/e ProNet will be in active attendance. On Friday, a/e ProNet President Eric Moore, CIC, of Moore Insurance Services, will make a keynote presentation:

Your Application Matters – How to Influence Premiums for the Better

It is important to understand what underwriters and insurance carriers look for when renewing a professional liability application/submission. In this presentation, attendees will learn how to better understand the underwriting process, how information is presented on the application, and improve their understanding of limit and deductible options when making the decision to purchase coverage.

Eric Moore specializes in providing risk management and insurance services to Design Professionals, including Architects, Engineers, Environmental Consultants and Land Surveyors.

a/e ProNet will also sponsor lunch on Friday, and our Executive Director, Dave Johnston, will be present to answer questions about our organization and how we can be of service to design administrators.

Lots of other exciting topics and activities are on the conference agenda, including a talk on Cyber Security and a chance for attendees to go rock climbing! We wish all SDA members safe travels and an enjoyable conference.