Inside Architects & Engineers Professional Liability Insurance

Typically, clients require architects, engineers and design professionals to purchase Architects & Engineers (A&E) Professional Liability insurance and provide evidence of coverage. The coverage is designed to protect the assets of architects, engineers and other design professionals from legal claims arising out of their professional services. A&E Professional Liability insurance covers the cost of defending against claims of negligence, errors or omissions that result in financial losses or damages to clients or third parties.

RPS Area Vice President Robert Kenney, RPLU provides insights into the various exposures A&E Professional Liability insurance addresses.

Project Delays, Design Errors, Construction Defects and Other Exposures

One of the most common types of claims architects and engineers face involves project delays and the potential costs related to these delays. "Delays can occur due to design changes, permit issues, unexpected site conditions or contractor errors," explained Kenney. "This delay may result in increased project costs, reputational damage and litigation."

Other exposures include design errors and omissions, such as mistakes or oversights in design plans, which can lead to structural issues, safety hazards or non-compliance with building codes.

Construction defects are another concern for architects, engineers and other design professionals. Poor artistry or material failures that compromise the integrity or functionality of a completed project can result in litigation and potential settlements or judgments.

"This tends to be a highly litigated area. In Florida, for example, if a condo association brings a construction defect claim and the dispute goes to litigation, Florida Statute 558 requires the plaintiff to name the design professionals as defendants in addition to the contractor," said Kenney.

Failure to meet professional standards of care, which leads to customer dissatisfaction or harm, is another exposure architects and engineers face. "In fact, when underwriters review an account, they want to know if the firm uses the standards set by the American Institute of Architects (AIA)."

Specific Projects and Venues Present Greater Risks

The type of project also impacts the level of exposure professionals face. "An engineer assisting in the design of a bridge has much greater exposure than one designing an office building."

Carriers also will look at the location of the architecture and engineering firm when assessing a risk, as specific venues are more litigious than others.

In addition to reviewing a risk's compliance with professional standards, the project type and the venue, underwriters will also review an account's loss experience, the professional service contract being used (an AIA versus a client's contract) and how much of the business is from returning clients versus new customers. "If a large percentage of business comes from recurring customers, it means the firm is doing a good job," said Kenney.

An Active Plaintiff Bar

Kenney explained that one of the biggest drivers of claims activity is the active plaintiff bar, particularly in some regions of the country with plaintiff-friendly court systems. "This contributes to a client's exposure, as lawsuits are easier to file. Instead of finding a solution to the problem, whether it's a miscalculation by the land surveyor or a project delay, clients are encouraged to turn to litigation."

Tailored Policies

A&E Professional Liability policies reflect the type of firm insured. "A firm working on low-hazard projects will typically get better coverage than one performing high-hazard services or working on high-hazard projects." In addition, low-hazard risks will typically have a low policy deductible. Policy limits are typically in the $5 million range.

Some carriers also offer a contract review service with their A&E insurance programs. "They have a third-party law firm review a client's contract and provide recommendations before the insured signs it. Having clear, detailed contracts that outline scope, responsibilities and dispute resolution processes can help mitigate future issues for insureds," said Kenney.