20 Frequently Asked Questions about Errors & Omissions Insurance for Architects & Engineers
Have questions about Errors and omissions insurance related to your Architecture or Engineering firm?
Below we put together 20 frequently asked questions from our A&E firms:
How much will professional liability insurance cost me?
The cost of professional liability insurance for design firms will depend on your specific discipline, the size of your business, and the type of work you offer. Larger firms and those that take on higher-risk projects may have higher premium minimums.
For example, architecture firms may see premiums starting at around $1,500 per year, while engineers may see premiums starting at $3,500 to $4,000 per year. To get a better understanding of the premium minimums for your business, it's a good idea to get quotes from several insurance carriers and compare their policies and pricing.
Just remember to also consider the coverage limits and exclusions of each policy to make sure it adequately protects your business.
What is the difference between general liability insurance and professional liability insurance?
General liability insurance covers claims that can happen in the normal course of business, like someone slipping and falling on your property. Professional liability insurance covers mistakes or errors made by you or your employees, like a design error in a project.
For architects and engineers, general liability insurance covers injuries or property damage that occur on your business property or as a result of your business operations. For example, if someone gets hurt on your property and needs medical attention, general liability insurance would cover those costs and any legal fees.
Professional liability insurance covers claims for mistakes made in the design or construction of a project.
So, if an architect designs a building that doesn't meet local codes and a client sues because of it, professional liability insurance would cover legal fees and damages.
It's important for architects and engineers to have both types of insurance to protect against a variety of potential claims.
My professional liability policy is a "Claims-Made" policy. What's that mean?
A "claims-made" policy is a type of professional liability insurance policy that provides coverage for claims that are made against you during the policy period, as long as the events that gave rise to the claim occurred on or after the retroactive date of the policy.
In contrast, an "occurrence" policy provides coverage for claims that arise from events that occurred during the policy period, regardless of when the claim is actually made.
What should I consider when choosing coverage limits for my liability insurance?
It's a good idea for a design firm to get at least $1 million in liability coverage. This way, the firm will have enough protection if it gets sued for mistakes in its work. We recommend that your limits are regularly evaluated as your firm grows and takes on different projects.
You may be able to ask your insurance underwriter what the average claim amount is for a firm like yours to figure out what policy limits to start with. However, it's difficult to provide an average claim amount for architects and engineers, as the amount of a claim can vary significantly depending on the insurance carrier and the specific circumstances of the case.
Is my firm a target if I have Liability insurance?
Having liability insurance won't make your firm more likely to get sued. It's just a way to protect your business in case something does happen. Even with liability insurance, there's still a chance that your firm could be sued. Liability claims can happen for all sorts of reasons, and no business is completely safe from being sued.
If you do get sued, liability insurance can help cover the costs of defending yourself in court and any damages or settlements that you may have to pay. Oh, and having liability insurance can give the impression that you're committed to your business and take your work seriously. Would you want to hire a design firm that isn't insured? Just something to think about.
What is a retroactive date and how does it affect my liability insurance coverage?
A retroactive date is a specific date that is used to determine the coverage period for a liability insurance policy. The retroactive date is typically the date on which the policy was first issued, but it can also be a date specified in the policy itself.
For architects and engineers, the retroactive date is important because it determines whether or not a liability insurance policy will cover claims that arise before the retroactive date. If a claim arises before the retroactive date, the policy will not cover that claim.
Architects and Engineers need to be aware of the retroactive date of their liability insurance policy and ensure that it provides sufficient coverage for their needs. If an architect or engineer is concerned about the potential for claims arising from past projects, they may want to consider a policy with a retroactive date that is far enough in the past to provide coverage for those projects.
This can help to ensure that the policy provides protection for the full scope of the firm's operations. Some insurance carriers offer "Full Retroactive Coverage" which will date back to the inception date of your design firm. You may want to ask your insurance broker if this coverage feature is offered from your carrier.
What does errors and omissions (E&O) insurance protect me against?
E&O insurance, also known as professional liability insurance, is designed to provide protection for architects and engineers against claims of negligence or errors in their professional services. If an architect or engineer is accused of failing to meet their standard of care and is found to be negligent, Errors and Omissions insurance may cover the costs of defending against the claim and any damages or settlements that may be awarded. This can include claims brought by third parties, such as clients or other stakeholders.
However, it's important to note that E&O insurance is not a guarantee of protection. The coverage provided by an E&O policy will depend on the specific terms and conditions of the policy, as well as the specific circumstances of the claim. It's a good idea for architects and engineers to carefully review their Errors and Omissions insurance and consult with their insurance agent or broker to understand the extent of their coverage.
Will my insurance company provide a law firm to defend me if I am sued?
It's possible that your insurance company will provide a law firm to defend you if you are sued, depending on the specific terms and conditions of your policy. Many liability insurance policies include coverage for the costs of defending against a claim, which can include the legal expenses for an attorney or legal team.
In some cases, you may be able to choose your own attorney, as long as the attorney is approved by the insurance company.
How do claims expenses differ from damages in an E&O insurance policy?
Damages refer to the financial compensation that an insured party may be required to pay to another party as a result of a liability claim. Claims expenses, on the other hand, refer to the defense costs or legal fees that you incur in the process of defending against a liability claim. This can include attorney fees, court costs, and other legal expenses.
Errors and Omissions insurance policies typically provide coverage for both damages and claims expenses. This means that if an insured party is sued for professional negligence or errors in their work, the policy may cover the costs of defending against the claim, as well as any damages or settlements that may be awarded.
Will filing a claim on my E&O insurance policy cause my premiums to go up?
Filing a claim on your Errors and Omissions insurance could lead to higher premiums in the future. Insurance companies consider a variety of factors when determining premiums, including the risk level of the insured party and their claims history.
If you file a claim, it might be viewed as an increased risk and result in higher premiums. We've seen the cost of insurance double or triple after a claim. The severity of the claim can also play a role in its impact on your business insurance.
On a bright note, most insurance carriers look at your five-year claim history, so if you go five years without a claim after experiencing one, your rate could drop significantly.
How can I determine if my professional services are covered under my E&O insurance policy?
To figure out if your professional services are covered under your Errors and Omissions insurance policy, you'll need to check your policy document. To do this, follow these steps:
Open your policy document
Press Ctrl + F (or "Command + F" on a Mac)
Search for the term "professional services"
This should take you to the definition section of your policy, which will give you a better understanding of what services are covered. If something is unclear, you can ask your broker to get clarification from your underwriter.
Keep in mind that professional services are usually defined as the services that you are legally qualified to perform. For example, if you're a structural engineer and you're asked to do a pre-purchase home inspection, you'll want to check if your policy covers this type of service. If you're not sure, don't be afraid to ask!
Will my insurance policy cover sub-consultants working on behalf of my business?
It's possible that your insurance policy will cover sub-consultants working on behalf of your business, depending on the specific terms and conditions of the policy. Some carriers have broader terms on "Who is an Insured" and this should be discussed with your broker.
An Errors and omissions insurance policy will provide coverage for a design firm if their sub-consultants make a mistake, depending on the specific terms and conditions of the policy.
What is an extended reporting period and how does it affect my E&O insurance coverage?
An extended reporting period, also known as a "tail coverage," is a provision that can be added to an errors and omissions insurance policy for architects and engineers. It provides coverage for claims that arise from work completed while the policy was in effect, even after the policy has expired or been canceled.
This is important because there is often a lag between when work is completed and when a claim is made. For example, if an architect designs a building that is completed in 2020 and a claim is not made until 2022, the design firm will need to have coverage in 2022 in order to be protected.
An extended reporting period allows the policyholder to continue to be covered for a set period of time after the policy has expired or been canceled. This ensures that the policyholder is protected against any potential claims that may arise from work completed while the policy was in effect.
Does my insurance company offer risk management support?
Errors and omissions insurance carriers for architects and engineers often provide risk management support as part of their policies. Risk management involves identifying and addressing potential risks in order to avoid potential losses.
Insurance carriers can assist architects and engineers in identifying and addressing risks in their work through access to resources and tools, training on best practices, and guidance on handling potential risks.
This can help prevent mistakes or errors that could result in costly legal fees and damages. We see that many firms don't take advantage of these offerings which in most cases are free.
Is it necessary for my professional services business to be licensed in order to obtain insurance?
It is generally necessary for a professional services business to be licensed in order to obtain insurance. This is because most insurance policies, including errors and omissions insurance for professional services businesses, require the policyholder to be licensed and in good standing in their profession.
This is to ensure that the policyholder has the necessary skills and knowledge to provide their services and that they are following all applicable laws and regulations. However, the specific requirements for obtaining Errors and Omissions insurance may vary depending on the insurance company.
What other types of professional services does liability insurance cover?
The following are types of other types of businesses that may require errors and omissions insurance:
Construction management (agency only)
Environmental (phase I and phase II only)
Heating, ventilation, and air conditioning
Will I lose my policy's retroactive date if I switch to a different insurance carrier?
It depends on the insurance carrier and the specific terms of the policy. Some insurance carriers may agree to honor the retroactive date of a previous policy if you switch to their policy. This means that your coverage with the new carrier will be effective from the retroactive date of your previous policy, providing continuity of coverage. Most if not all design firms we work with who have switched carriers have kept their retroactive coverage with the new carrier.
Will I lose retroactive coverage if my policy lapses?
If your errors and omissions insurance policy expires or gets canceled and isn't replaced, you could lose your retroactive coverage. This means you won't have coverage for any claims that come from work you did while the policy was in effect, even if it had a retroactive date. To avoid gaps in coverage, make sure you renew or replace your policy before it expires.
What is the process for reporting a claim on my E&O insurance policy?
To report a claim on your errors and omissions insurance policy, you'll need to follow the steps outlined by your insurance carrier. This usually starts with letting your carrier know about the potential claim as soon as possible.
They'll have a claims department that can give you more information on what you need to do. Gather any relevant documents, like contracts or reports, and fill out a claim form provided by the carrier.
Submit the form and documents, and work with the carrier to resolve the claim. Make sure to report potential claims as soon as you can to ensure you have proper protection under your policy.
How frequently should I review my insurance policy to ensure that it is sufficient for my needs?
How often you should review your policy will depend on your specific situation, but it's generally a good idea to do so at least once a year. This will give you a chance to make sure that your coverage is still sufficient and that you're not paying for coverage you no longer need.
If you have experienced significant changes in your business, such as an expansion or a change in the services you offer, it may be a good idea to review your policy more frequently.
Overall, the key is to stay informed about your policy and to be proactive in making sure that it is meeting your needs. If you have any questions about your coverage, don't hesitate to reach out to your insurance carrier for guidance.