Architects and engineers face unique risks and challenges in their daily work, and they need insurance coverage that will protect them in case of errors or omissions. An errors & omissions (E&O) policy is designed to address these risks and provide protection against claims of professional liability. If you're an architect or engineer looking for Errors and Omissions insurance, there are several key factors to consider when selecting a policy.
Coverage Limits: One of the most important things to consider in an E&O policy is adequate coverage limits. The coverage limits will ensure that you have enough protection in the event of a claim. Consider the type of work you do, the size of your projects, and your potential exposure to liability when selecting a coverage limit. We recommend starting with $1,000,000 in E&O coverage for peace of mind. Some say they would never get sued for that much which is understandable. Usually, the cost difference isn't worth it.
Policy Definition of Professional Services: It's essential to have a clear and comprehensive definition of professional services included in the policy. This definition should align with the services provided by the architect or engineer and should not leave any gaps in coverage.
You should always carefully review the definition of professional services included in the policy and ensure that it covers all the services provided by the architect or engineer. An overly restrictive definition of professional services could limit the architect or engineer's work scope. It may exclude services commonly offered but not explicitly listed in the policy. On the other hand, a broad definition will provide flexibility to expand your scope of work while still staying in the coverage envelope.
In discussions with our clients, it's advisable to discuss the insurance carrier's intent and to understand what the policy covers. This is an excellent opportunity to communicate the direction the design firm plans to take, as it provides a clear understanding of the scope of services the policy will cover.
Coverage for Defense Costs: Defense costs can add up quickly in case of a liability claim, so it's essential to look for an E&O policy that provides coverage for these costs. This will help ensure you have the resources to defend yourself against a claim, even if it's meritless. Many small design firms tend to use their insurance just for costs to protect their firm and get them out of the claim.
Coverage for Full Prior Acts: If you've been practicing as an architect or engineer for a while, it's vital to ensure your E&O policy covers work performed before the policy period. This is known as coverage for prior acts and is usually indicated by a retroactive date. It will ensure protection for work you've done in the past as your completed projects and risks accumulate. Question is, how far back is your policy covering you? We often find coverage gaps between the time firms began to perform their services and when their professional liability coverage actually starts.
The extent of Coverage for Contracted Personnel: If you work with independent contractors that fall into the "gig economy," it's essential to make sure your Professional Liability insurance covers your firm while they work under your company. This arrangement depends on the relationship with the sub-consultant, and you should identify this before hiring.
The gig economy has seen growth for many small firms that need more resources to hire and train full-time professionals. Many firms might hire independent consultants for a short period to support a project and might consider them "employees" during that time.
In this case, design firms who hire sub-consultants that fall into that gig territory can be at ease knowing if their Errors and Omissions carrier can extend coverage. We recommend discussing the details with your insurance broker and underwriter to understand the intent of what the policy covers in this circumstance.
Reputable Insurance Company: Finally, choosing an E&O policy from a reputable insurance company is essential. Like anything else, you can start with social proof. You can find this through others in the A&E industry. Look for a company with a solid financial rating and a good track record of handling claims. Some carriers enter the space and also exit. We recommend insurance companies that have been in the A&E industry for at least a decade.
An Errors and Omissions insurance policy is a must-have for architects and engineers who want to protect themselves against professional liability claims. When selecting a policy, it is crucial to consider several key factors, including coverage limits, the definition of professional services, coverage for defense costs, coverage for prior acts, the extent of coverage for contracted personnel, and the insurance company's reputation. By considering these factors, architects and engineers can ensure they have the proper E&O insurance coverage to meet their unique risks and challenges.
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