There are numerous insurance risks associated with every construction project, however, one of the most important policies is all too often overlooked by architects, engineers and construction managers. While many construction firms will do what they can to ensure they have coverage for builders risk, general and excess liability and workers compensation, owners fail to take into account professional liability insurance.
Unfortunately, professional liability insurance can be the crucial aspect of protecting architects and engineers from exposure to some of the biggest risks associated with a project no matter the size. Whether owners mistakenly assume their general liability insurance covers the company or whether they think they won’t need the coverage, not obtaining the proper professional liability insurance for a construction project can ultimately cost the organization a considerable amount of money in the event of a client filing a lawsuit.
The importance of professional liability
Architects and engineers face unique challenges, which leads to even more distinct obstacles they must overcome. From the sky-high expectations to any resulting design errors, the damage that can stem from even the smallest mistake can be disastrous.
“The damage that can stem from even the smallest mistake can be disastrous.”
For example, an on-going construction project involving the extension of a light-rail system in Charlotte, North Carolina, may have caused the collapse of an adjacent 1,500-square-foot warehouse, The Charlotte Observer reported. The building’s destruction, which happened on Christmas Eve, stemmed from the contractor removing too much dirt under a wall.
According to the newspaper, Sam Vyas, the owner of the warehouse, said he noticed structural problems as soon as construction started in 2014. Vyas estimates that despite spending $150,000 to stabilize the wall before it collapsed, it will still take more than $200,000 to repair the damage, in addition to the $80,000 of equipment losses sustained during the destruction.
During the run-up to the eventual collapse, Vyas said a city inspector overseeing the project told him his building had a structural problem. To remedy this, Vyas hired an engineering firm to shore up any deficiencies. After reviewing the grounds, the engineering firm said it suspected the primary cause of the problem to be the altering of the slope by the city’s construction team.
Whether the engineering firm, the city’s contractors, the owner or no one is at fault will be decided in court. However, with the prospect of a potential lawsuit directed at them, the engineering firm will need the protections afforded by professional liability insurance. In this instance, the city might claim faulty craftsmanship by the engineering firm failed to satisfy the client’s specifications, resulting in the collapse. Since this did not include a workplace accident, it does not fall under the coverage of the majority of general liability insurance policies.
A variety of risks
The example in Charlotte is just one of many ways architects, engineers and construction managers can come under assault in a way that general liability coverage will not protect them. As noted by International Risk Management Institute, Inc., claims can arise for alleged acts of negligence, errors or omissions that arise during the draft and design process.
Although it is not too common, there are some instances when an architect or engineer will make decisions and designs or proffer consultative advice that the client claims falls outside the realm of their professional expertise. Whether this includes providing sustainability knowledge that does not conform to regulatory specifications or it involves offering technical details for a project that do not support the overall structure, the resulting lawsuits can be expensive and ruin a company’s reputation.
However, architectural and engineering firms are not the only companies that should rely on professional liability insurance. Construction companies subcontracting one of these firms can also find their organization on the hook for damages or lawsuits arising from a problem caused by the architect or engineer. While the architect or engineer will draft the blueprints for a particular project, the actual boots-on-the-ground work does not always progress as efficiently or properly as originally anticipated. In a scenario like this, it exposes the firm to the possibility of an expensive lawsuit. This can leave both parties exposed to costly risks.
Who can help?
Brokers who partner with a wholesale insurance provider like McGowan Risk Specialists gain years of industry experience in providing professional liability insurance for architects and engineers. With our “Power of the Pen” we can create unique insurance plans specifically tailored to firms of all stripes, from acoustical engineers to construction managers and from landscape architects to sustainable design firms and just about everyone in between. By providing cost-effective solutions without sacrificing these crucial coverages, architects and engineers know they can expect the unexpected when they think McGowan.