Architects & Engineers Should Look Closely at Their Liability Protection

There is a tendency in the insurance industry to offer niche liability policies, especially in the field of architects and engineers.

It is quite common to find specific policies, separately covering public liability, malpractice, errors and omissions liability and professional indemnity – each in a separate jacket, offered at more or less attractive prices.

It is only when an insured runs into a claim which falls into the gap between the various covers that the question of "Why?" arises.

It is herein suggested that individual architect or engineer should consider a newer approach to their insurance protection needs.

First, architects and engineers should see the difference between their Personal Liability and their Business Liability.

Second, they should better understand the scope of each coverage definition, and to realize the risk potential they may be left with, unless they purchase the proper cover.

Third, they should compare different covers offered to them according to the scope of coverage provided, and not according to the bulk amount they are required to pay for a specific policy.

Personal Liability versus Business Liability – or are they on the same side?

Architects and engineers often work as employees in a firm or independently (self employed), or even as owners of a firm (shareholders in a company or partners in a professional corporation).
In some cases, they are employed by more then one firm, or even become a part of a group of professionals or investors handling a specific project or a number of few projects.

This complicated structure creates a risk exposure potential for the individual architect or engineer, if they only have personal coverage.

Architects and engineers may face personal liability resulting from malpractice or errors and omissions or, as directors or officers of firms, they may be subject to civil (and in some cases – criminal) liability. As firms are a legal entity, they have to be protected independently against public liability (general third party), which in many cases, may be confusing: in different countries, different laws may expose the individual to claims made against partnerships, general or limited partnerships, sole owners corporations, family-owned corporations, transparent-corporations or - in most cases – trade names. The outcome of this is clear: a business should be protected, and an individual within the business should be covered.

Many architects and engineers rely on the business policy to protect them individually against this variety of liabilities. This is correct and wise, but does not work all the time.

An individual relying on another's policy can be exposed to multiple events, where the policy will not provide them with the appropriate cover: expiration of a claim-made policy with no long tail coverage for future submission of claims; exhausting of the insured amount by other claims, thereby leaving the policy empty; unknown terms or exclusions to the individual employee which may jeopardize one's cover; extremely high deductibles or excesses which are above the financial ability of the individual insured, and many other events.

The conclusion of this section is that it is important to arrange coverage in a way that will protect both the individual and the business from exposure, and if you are an individual within another firm, it would be better to rely on your own policy to protect you.

Public, General, Third Party, Professional, Malpractice, Misconduct, E&O – what should one buy? And what is the difference between Liability and Indemnity?

Insurance policies usually exclude from coverage any risk that can be covered under another type of policy. For this reason, in most of the Public Liability Policies there are exclusions for liability resulting from professional misconduct or product liability. Although the name represents a potential coverage for every claim or liability, this policy should be read carefully, as it contains numerous exclusions and limitations, which narrow its coverage to the exact events the insurer intended to cover.

The names "General Liability", "Public Liability", "Third Party Liability" – all mean the same thing - the company will cover you when you become legally liable to any third party, and will either pay the claimant or reimburse you for up to the insured amount, less the deductible or excess stated in your policy. It is important to mention again: there are numerous exclusions and limitations which one should review (preferably before the purchase of the policy), which reduce the exposure of the company (and increase the risk of the insured).

Knowing this lays the groundwork for understanding the various other types of liability cover. Most of them are defined by the actions or the default of the insured - malpractice, misconduct, error, omission – during the course of their professional conduct.

Now, is it possible to define the possible problems that may arise? Since the unexpected occurrence that may result in an architect or an engineer becoming liable and needing to reimburse another party is, as stated, "unexpected," then one should be prepared and protected for any and all scenarios. In other words, an architect or an engineer should be covered against all types of events, and cannot allow themselves to pick and choose from a variety of options a coverage that will be available only for specific types of events.

Legal and Business Requirement

Quite often we hear of architects and engineers applying for insurance that will cover them "according to the demands made by…" – regulators, professional boards and guilds, customers, contractors, employers etc. - all of which serve as guidelines for many decisions made daily by architects and engineers when they purchase insurance. Only rarely do we see an architect or an engineer explicitly saying they want suitable protection that will ensure a safe future for themselves and their dependents.

Awareness and understanding of the risks involved should be the main reason for the purchase of liability insurance. The suitability of the insurance to the requirements of the various entities should be set as a prerequisite for the insurance company, and not the basic reason for purchase.

It is ironic that every year these same architects and engineers, who so easily purchased less protection than they need, conduct a thorough, serious and professional negotiation regarding their auto insurance. It is crucial that the purchase of liability protection policies become an important, serious matter and that architects and engineers ask themselves, "Am I properly protected? Will this policy cover me and my interests in a time of need?"

The answers to these questions should be the criteria for the decision to purchase comprehensive liability coverage, which is not limited to the requirements set by interested parties. A single comprehensive policy will prevent the possibility of gaps between the different definitions of risks and actions.

This decision may initially cause a higher outlay for the architect or the engineer, but will result in lower exposure and expense in the future.  

(By Mr. Oded Reches is a professional consulting architect to Sinclair Insurance Company)

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