Selecting A Professional Liability Program

Apr 15

The following material is provided for informational purposes only. Before taking any action that could have legal or other important consequences, speak with qualified legal and insurance professionals who can provide guidance that considers your own unique circumstances.

You knew from the beginning that using your brother-in-law as your insurance agent wasn’t the wisest business decision you had ever made since starting your architect firm. After all, Fred specialized in accountant’s professional liability (PL) insurance, not PL insurance for design professionals. But he said he had access to a good market for design professional’s PL, and, anyway, professional liability insurance was pretty much the same regardless of your profession. With a bit of pressure from Fred’s sister (your wife), you caved and kept the insurance business all in the family.

Fred could get you a basic PL policy with low but, at least for now, adequate limits and a few loss prevention services. The claims service wasn’t all that hot either. When you had a dispute with a client over water intrusion in the terrarium of an office building you designed, you thought it was clearly a construction error by the contractor. But the insurance company seemed more interested in settling the claim than showing your designs were not faulty.

You stuck with Fred and the bare bones PL policy he recommended as your business continued to grow slowly. Then, your designs drew the attention of a large potential client who wanted to hire you for a sprawling new office complex. The trouble was that the prospective client demanded higher insurance limits than Fred could deliver. Fred suggested that you try to convince the prospect to lower his insurance demands.

You concluded that Fred’s knowledge (or lack thereof) of the architect and engineer (A/E) industry could cost you substantial business. It was time to move on and find an A/E specialist who could meet the heightened needs of your growing business and help you keep your present and future clients happy.

Choosing Your Agent or Broker

Finding the right professional liability insurance program begins with finding the right agent or broker. Indeed, most insurance companies (a.k.a. carriers) require that design consultants work through a third-party agent or broker and will not negotiate directly with an A/E client.

What’s the difference between an agent and a broker? Traditionally speaking, an insurance agent represents the insurance carrier and can act on its behalf, whereas an insurance broker represents the client and works with various insurance carriers. That distinction, however, has become blurred over the years as many insurance brokers can represent A/E clients while also acting as an agent for particular insurance carriers. Today, you’ll find the terms agents and brokers used interchangeably. What’s important is that you understand how your Insurance Representative operates and that it genuinely looks out for your best interests. We will refer to your agent or broker as an Insurance Representative for this article.

What do you look for in an Insurance Representative? You’ll want an experienced professional liability specialist who understands the business of design consulting and the risks and liabilities A/Es face daily. You’ll want an Insurance Representative who has a substantial book of business that includes other A/E clients similar in size to your firm and who offers similar types of design services.

You’ll want an Insurance Representative who has good relationships with multiple insurance carriers serving the A/E profession. You’ll want an Insurance Representative who can provide you with detailed cross-comparisons of the insurance carriers who can best meet your PL needs, spelling out the strengths and weaknesses of each. Such agents/brokers can help you complete your application in a way that profiles your company strengths and practices while obtaining multiple premium quotes that help you identify the best value for your premium dollars.

You’ll want an Insurance Representative who is active with the design consultant associations. They’ll have experience working with state and local chapters of the AIA, the ACEC, and other professional organizations to develop risk management standards, guidelines, and best practices for association members. Likewise, look for an Insurance Representative who belongs to insurance industry associations like the Professional Liability Agents Network (PLAN), whose members work together to create educational risk management programs and identify suitable insurance companies for A/Es.

You’ll want an Insurance Representative who offers loss prevention and risk management programs to you and your staff. These programs can take the form of conventions, conferences, in-house seminars, and online webinars designed to educate your firm staff on how to lower liabilities and avoid claims. These programs can also help you earn the learning units necessary for your profession’s continuing education requirements.

Insurance Representative services such as contract reviews can be invaluable. An experienced specialist Insurance Representative can help you analyze your client’s contracts, identify language that presents unacceptable and possibly uninsurable risks, and suggest essential missing clauses often left out by the client and the client’s attorney.

Finally, you’ll want an Insurance Representative who can meet all of your commercial insurance needs. Professional liability insurance will undoubtedly be at the core of your risk management program. The Insurance Representative’s experience with general liability, property, auto, umbrella, cyber and other types of insurance recommended for A/Es is essential. Having all of your policies handled by a single Insurance Representative can help avoid coverage gaps and overlaps and ensure you’re getting the best protection for your insurance dollar.

Choosing Your Insurance Carrier

Once you have selected an Insurance Representative to help you develop a comprehensive professional liability risk management program, you can select a suitable insurance carrier for your needs. Today, there are plenty of options for you to consider as the market for PL insurance for architects and engineers has grown substantially over the past few decades. Here are a few of the items you and your Insurance Representative should discuss when making your choice of a carrier.

Quality, continuous coverage. You’ll find that policy forms for A/E PL insurance are relatively similar. The carriers will cover you for professional liabilities (a.k.a. errors and omissions) in delivering your services. Likewise, they will have similar exclusions, such as not providing coverage for intentional acts of fraud and policy exclusions for contractual clauses you assume in your agreement that require your firm’s performance beyond the Standard of Care.

However, there can be some critical differences in terms of the types of professional services insured, potential claim notice required for coverage, and whether prior acts (errors or omissions committed before your policy inception date or retroactive date) are insured. Prior acts coverage is critical to ensure there are no gaps in coverage for your previous work. Professional liability for A/Es provided on claims-made coverage basis insurance means the policy in effect when the claim is made and reported to your insurer provides the coverage.

Expert claim service. It’s the reason you buy insurance. You want someone to be there on your side in the event of a claim or potential claim.

Look for an insurance carrier that has a claims department dedicated to serving the A/E profession. That includes claims managers and representatives who know your industry inside and out and have successfully defended design consultants. You’ll want an insurer who works in concert with your specialized attorney to call upon when particular expertise is required to help you navigate and minimize the claim.

And perhaps most important of all, you’ll want a pre-claim service that can help you settle a dispute before an actual lawsuit. Preventive actions by an experienced, dedicated claims department can help soothe an upset client or a combative contractor and resolve a job upset before it turns into a full-blown claim. A claims department that offers this type of expertise is worth its weight in gold. A claims department that refuses to assist you until after receipt of a lawsuit most likely loses the opportunity to resolve the dispute and possibly rescue your relationship with your client.

In-depth loss prevention education. The best PL insurers for design professionals provide relevant education programs to help their insureds manage risks and prevent losses. These programs, delivered in conjunction with your insurance representative, by national A/E associations like AIA, the ACEC, or, in Canada, the RAIC, facilitate a shared understanding and agreed upon risk management goals for your firm and its employees. Many of these programs are registered with national associations and earn you valuable continuing education learning units required to keep your license current. Programs cover such topics as selecting clients and projects based on their risk profiles, identifying important missing clauses and removing client contract clauses that present unacceptable risks, and how to conduct yourself when visiting the jobsite.

Contract reviews. Contract review services can be one of the most valuable risk management tools offered by specialized agents/brokers. Resource available to your firm will include the specialized insurer’s resources and those resources provided by your Insurance Representative. Your insurance carrier and Insurance Representative can provide a detailed review of targeted parts of a client-provided contract, identify unacceptable risks, and provide alternative contract language that equitably places risk with the responsible party. Your Insurance Representative can assist you in convincing the client that a contract with an inequitable allocation of risk might jeopardize insurance protection on their project.

Some of the best insurance carriers provide detailed contract review materials in electronic form, including dozens of recommended contract clauses and advice for negotiating fair language with clients.

Premium reduction programs. You’ll likely find some insurance carriers that will reduce their premiums if you follow their risk management advice. For example, one insurer will issue you a 10% premium credit if you complete one of their loss prevention workshops and up to a 15% premium credit if you include limitation of liability language in your client contracts. Ask your Insurance Representative about these programs.

Longevity. There is something to be said about PL insurance programs serving the A/E industry for decades. Professional liability policies are said to have “long tails.” That is, claims do not substantially develop until several years after the insurer has begun collecting premiums. There have been instances when a new A/E PL program offers policies at low rates – often with few, if any, loss prevention and risk management resources included. A few years later, when claims start to develop, they exit the market. The insured is then left to scramble to obtain a new carrier who will provide prior acts coverage for the past projects. It’s always a good sign when an insurer has shown dedication to serving the A/E market long term, in the good years as well as the bad.

Financial strength. Insurance rating agencies such as A.M. Best provide alphabetical and numerical ratings to indicate the financial strength and operating performance for most major insurance companies. While an insurer’s financial rating does inspire some level of confidence, it is not the end-all and be-all when selecting an insurer. For instance, an “A” rated carrier with a robust loss prevention program could very well be a better choice than an “A+” rated carrier with an anemic loss prevention education program. Similarly, while an “admitted” carrier (one approved by your state’s insurance department) does inspire a high level of confidence, a “non-admitted” carrier may have advantages as well, such as the ability to be more flexible with its insurance offerings. Talk with your Insurance Representative if you have concerns about an insured’s non-admitted status or lower-than-typical financial ratings.

The Search is On

Professional liability insurance is just too important not to conduct a thorough search for the best combination of insurance Insurance Representative and insurance carrier. And this isn’t a one-time exercise. Once you’ve selected an Insurance Representative, you should set up an annual schedule for loss prevention education programs. Then follow up at your first anniversary with your Insurance Representative to determine whether needs were met and promises kept. Hopefully, you’ll develop an ongoing mutually beneficial relationship that improves over the years.

You and your Insurance Representative should also conduct an annual review of your insurance carrier. Discuss the quality of their customer service, their loss prevention education offerings, and their claims service.

Your Insurance Representative should suggest a detailed review of your insurance carrier and the insurance marketplace every three to five years — and more frequently if you’ve received dissatisfactory service. Ask your Insurance Representative to evaluate your carrier and other leaders in the market and provide a cross-comparison of their coverages and services, making it easy for you to make the right decision for your insurance protection.

Can We Be of Assistance?

We may be able to help you by providing referrals to consultants, and by providing guidance relative to insurance issues, and even to certain preventives, including the development and application of sound human resources management policies and procedures.

Please call on us for assistance.

We’re a member of the Professional Liability Agents Network (PLAN).