Don’t Delay! Report That Potential Claim Today!

A Professional Liability claim is triggered by a demand for money or services. Once you receive such a demand, it’s easy enough to call your broker and report the claim. But what about reporting a situation that could give rise to a claim?

Say you’re standing on a job site, eyes wide, jaw hanging open, because you see that something isn’t right. You expect that the situation you see before you could (likely, will!) give rise to a claim, but you can’t be certain. Nor can you be sure that the accident/flaw/behavior/error be held against your firm, specifically. And maybe it’s fixable in the meantime. What should you do?

It is in the best interest of your firm to call to your broker anyway. Report the potential claim.

The following is an excerpt from our ProNet Practice Note entitled Reporting Claims and Potential Claims Under Professional Liability Insurance Policies (2010):

Early reporting has many rewards. Let’s look at an actual situation: An architect called his insurance broker to tell her that a one-ton balcony collapsed adjacent to a recreational pool area. The broker immediately notified the insurance company, who put the design firm in contact with a lawyer to start gathering information and to remind the principal of appropriate responses during the crisis. The insurer then hired a forensic engineering firm, all before the architect even pulled into the parking lot!

In addition, the broker offered her client tips on good public-relations skills when facing the media—still during their drive to the site. The architect was prepared with an alternate solution when his client wanted to sweep up and remove the debris, thereby erasing a critical part of the story should a claim be made later.

Reporting a circumstance or claim should begin your access to the power of your insurer, including its expertise, network of consultants and attorneys, and financial resources. You will not only get valuable assistance with the loss or possible loss, but you also often avoid making a bad situation worse.

What if our architect had told his client, “Don’t worry, I’ll take care of it” before his negligence was established, thereby possibly accepting financial risk without insurance coverage? Every claims adjuster has sad stories like this to tell. This is most common when a design firm receives a subpoena for testimony before being made a party to the action. Feeling they are fulfilling their civic obligation, they freely discuss matters with opposing counsel in what they may later consider an unwise fashion after they are joined in the claim and find that their casual, on-the-record comments harm their own case. Early advice from the claim adjuster can be invaluable.

Even if, later on, this policyholder discontinues their insurance or purchases coverage or options that are less favorable than they currently have, this claim will be covered under the terms and conditions of the policy in place on the date the circumstance was reported to the insurance company.

Even if you are not obligated to report a circumstance according to your policy requirements, you may still report it. By doing so, you will have more options to choose from at your next renewal. You may not ultimately decide to switch to a different insurance company, but you should have the freedom to do so. Unless the matter is reported, you are not free to consider other insurers, lest a claim arise with the new insurer from an unreported circumstance of which you were previously aware.

Visit the a/e ProNet website for additional information on this topic as well as many others. A full library of ProNet Practice Notes are available for free download.

Professional Liability Insurance Survey – Engineering, Inc.

For architects, engineers and other design consultants, Professional Liability insurance (Errors & Omissions insurance) can seem like an annual headache. Once a year the app gets dropped in your lap; thus begins a process that, at times, seems fairly–er–intimate.

Cue the bright lights.

Report your billings! Tell us how many jobs you’ve completed! What kinds of projects did you do? What percentage of your billings went to subcontractors? How many employees left your firm? Describe your loss history!

Contracts require the coverage, so there’s no getting around the process, but does it really need to feel like you’re getting the third degree? Is the requested information that important?

According to the 2011 ACEC/AIA/NSPE annual Professional Liability insurance survey of carriers, Professional Liability insurance premium “rates depend largely on four main characteristics:”

• Annual Billings
• Type of Practice
• Claims History
• Project Types

So, yes. Your application matters every year. Your insurance broker will take this year’s application and place it side by side with last year’s. This can provide the kind of overarching perspective needed to secure fair renewal terms for your firm, both from your current insurance company and from other companies for your comparison. It’s a drill, certainly, but it can save you money and ensure that your firm is appropriately covered based on its unique practice.

Insurance premiums are often a major part of a design firm’s overhead, and the most commonly asked question at renewal time is usually, “Will my professional liability premium be going up this year?”

For an accurate answer, it’s best to go to the source. Sixteen Professional Liability insurance providers responded to the survey mentioned earlier; among them are several of a/e ProNet’s sponsors, including:

RLI, Travelers, Victor O. Schinnerer, Liberty, Beazley, Catlin, HCC

The results of the survey are broken down and explained in the most recent issue of Engineering, Inc. (an ACEC publication); these include some interesting projections about the future of Professional Liability insurance, its underwriting parameters and its premiums.

Though experts do not expect the long-sustained “soft market” to change dramatically, “about half of the carriers that responded… anticipate a slight increase this year. Seventy-five percent of respondents expect price hikes in 2013.”

The full article is available along with the rest of the Engineering, Inc. Jan/Feb 2012 issue here. It goes on to address several more important insurance renewal questions, including:

• How do I pick a Professional Liability insurance provider?
• What limits should I purchase? How high should my deductible be?
• If my business is down, why should I continue to carry Professional Liability insurance?
• What steps can I take to keep my premium down as the design and construction industries continue to recover?

The full results of the 2011 ACEC/AIA/NSPE annual Professional Liability Insurance survey of carriers will soon also be available at the ACEC website.

CCM+S Newsletter: A Dangerous Precedent

After a year-long investigation, the Los Angeles District Attorney’s office charged German architect Gerhard Albert Becker last Wednesday with involuntary manslaughter in the death of L.A. firefighter Glenn Allen.

On February 16, 2011, more than 80 Los Angeles firefighters responded to a blaze at a 13,500-square-foot mansion in the Hollywood Hills; the home, valued at $11M, was slated to be the backdrop of reality TV show Germany’s Next Top Model later that same month. As the fire spread, the second and third floors partially collapsed, burying veteran firefighter Glenn Allen under hundreds of pounds of lumber and plaster debris.

Though Allen’s colleagues were able to dig him out with chainsaws, the firefighter ultimately succumbed to his injuries; he died two days after the fire.

As reported by the L.A. Times, “Building inspectors said Becker had told them there were no plans to build fireplaces in the home, and none were spotted during a final inspection. After the fire, investigators discovered that he had installed four outdoor fireplaces inside the home, a violation of city building codes.”

This is a case worth watching for design professionals as it is, according to Southern California attorneys Brian Stewart and Ryan Harley (both of Collins Collins Muir + Stewart LLP), “the first time in memory that a designer (or contractor for that matter) has been charged criminally with manslaughter in connection with design or construction of a building.”

The following is an excerpt from a short article released by CCM+S which provides a brief explanation of the allegations:

“After a year-long investigation, Mr. Becker was recently charged by the District Attorney with one count of involuntary manslaughter in connection with the death of Mr. Allen. As used here, involuntary manslaughter is defined as an ‘unlawful killing which takes place during the commission of a lawful act, which involves a high risk of death or great bodily harm, that is committed without due caution or circumspection.’ See California Penal Code section 192(b)(2). Acting ‘without due caution or circumspection’ is akin to criminal negligence, and basically amounts to reckless behavior which a normal prudent person would not have engaged in under the circumstances. For comparison, this is the same statute which was recently used to convict Michael Jackson’s doctor Conrad Murray.”

You may download the full PDF at the a/e ProNet website.

Professional Liability vs. General Liability

This is one of the most common insurance questions asked by architects and engineers:

What is the difference between Professional Liability and General Liability coverage?

Both coverages are integral to the protection of your firm, so it’s no coincidence that you’ll see requirements for both coverages in almost ALL contracts. But what are the differences between them?

Professional Liability (PL) vs. General Liability (GL)

GL coverage is triggered by bodily injury or property damage.
PL coverage is triggered by bodily injury, property damage, or economic (consequential) damages.

GL is typically written on an “occurrence” basis.
PL is written on a “claims made” basis.

GL covers damages arising out of an a/e firm’s day-to-day operations, excluding professional services.
PL covers damages arising out of an a/e firm’s professional services.

GL limits are not eroded by defense costs. Defense costs are unlimited and sit outside the limits of liability.
PL limits are, typically, eroded by defense costs. In other words, the liability limit covers both defense and indemnity payments.

GL allows Additional Insureds.
PL does not allow Additional Insureds.

GL may be scheduled under an Umbrella (Excess) Liability Policy.
PL cannot be scheduled under an Umbrella (Excess) Liability Policy.

(Professional Liability insurance is also known as Errors & Omissions  insurance.)

The answer to this Frequently Asked Question was supplied by a/e ProNet member IOA Insurance Services of California. Visit their website for more information.

Cream of the Crop: The 2012 AD100

As we perused the 2012 Architectural Digest Top 100 list of architecture and design firms, “trailblazers and standard-bearers whose work is imaginative, intelligent, and inspiring,” we were excited to see a few familiar faces! Congratulations to the ProNet clients who made the cut:

Allan Greenberg Architect has offices in New York City, Washington, D.C., and Greenwich, Connecticut. As Architectural Digest’s profile notes, “Historically inspired facades, ample but thoughtful doses of ornament, and, of course, columns of all orders distinguish his celebrated work.”

Backen, Gillam & Kroeger Architects has offices in Sausalito and St. Helena, California. Principal “Howard J. Backen has a well-earned reputation among top Napa and Sonoma vintners as the go-to guy for beautifully designed houses and wineries alike,” according to the Architectural Digest profile.

McAlpine Tankersley Architecture is an Alabama firm whose portfolio “is replete with artistic houses fusing oriel windows, swooping slate roofs, and quirky asymmetrical wings.” The Architectural Digest profile also mentions “the company’s interior-design branch, McAlpine Booth & Ferrier Interiors, and the handcrafted furniture line produced by the McAlpine Home division.”

Once again, congratulations to our celebrated clients on this honor. And don’t forget to check out the rest of the 2012 AD100.

ProNetwork News: Private Arbitration – A better way to resolve construction disputes?

The November issue of ProNetwork News focuses on explaining the benefits of arbitration. The author, Melissa Dewey Brumback, is a litigation partner at Ragsdale Liggett PLLC of Raleigh, North Carolina. The bulk of her practice consists of representing architects and engineers in construction-related claims including construction administration and management, plan defects, testing failure claims and delay claims.

The following is an excerpt from Private Arbitration: A better way to resolve construction disputes?:

Architects and Engineers are very familiar with the concept of arbitration of construction disputes. The three main standard sets of form documents – AIA, EJCDC, and ConsensusDOCS, – all contemplate resolving disputes outside of a courtroom. In the past, the default tribunal was arbitration, and, in the case of AIA documents, arbitration through the American Arbitration Association (AAA).

AAA arbitration is, by and large, successful. The tribunal understands that construction disputes are not like typical breach of contract cases, and that individuals with specialized training and knowledge will likely better understand industry norms and terminology. Leaving such concepts as Requests for Information, Construction Change Orders, Construction Change Directives, Construction Administration v. Construction Management, Acceleration, Critical Path and other industry terms to a lay jury is often deemed unwise. By utilizing AAA arbitration, the parties can instead get a panel of industry experts to hear their case and, presumably, the matter can be dispensed with much more quickly and cheaply than traditional courtroom litigation.

However, if you have ever had a chance to participate in a full AAA arbitration, you know that its benefits come with costs: hefty filing fees, inflexible coordinators, uncertain evidence rules and more chance of a panel “splitting the baby.”

What is the best venue, then, for construction disputes? That depends on the size of your project, the nature of the dispute and the jurisdiction you are in. However, one option that is being used more and more is private arbitration.

Private arbitration can either be negotiated up front, during contract drafting, or after a dispute has arisen. In fact, I have even gotten opposing counsel to agree to private arbitration after they have filed the lawsuit.

Click here for the full-length PDF version of this article.

ProNetwork News is the latest value-added resource produced by a/e ProNet. Each monthly edition includes an informative, timely article relevant to the design industry and authored by an industry expert. Contact your local a/e ProNet broker for early access to these excellent newsletters.

The Cost of Perfection

Nobody’s perfect, yet perfection is always desirable, especially on a design project. Just for a second, let’s imagine that perfect world:

Deadlines met. Costs at or under budget. Environmentally-friendly materials preferred by all parties. Nobody injured, no property damaged. Zero miscommunication.

Sounds, well, perfect, doesn’t it?

Unfortunately, there is a downside to trying to attain a perfect project. As it turns out, perfection is unrealistic enough to guarantee disappointment, which will almost inevitably cause rifts between members of the design team. An architect or engineer can better prepare to avoid this scenario by managing the project owner’s expectations early on, refocusing the energy of the team on achieving success rather than perfection.

The following is an excerpt from our ProNet Practice Note entitled The Cost of Perfection: A Design Professional’s Perspective:

Owners that involve themselves in a collaborative and cooperative team approach with the design professional (and construction contractors when identified) are most likely to accomplish successful projects. This team approach involves the honest exchange of ideas, information and problem solving efforts that minimize costs and improve results. However, there is a trend with some owners to define a successful project as one without any risk to the owner. This “risk free” approach is anything but risk free; in fact it may be just the opposite.

Each project is different, but the experienced design professionals on a given project have been through the basic process many times. The architect knows her role as designer. The engineer understands which skill set he brings to the table. This is not necessarily true of the project owner; he or she may come to the same table with some weighty misconceptions. Ironically, these misconceptions may be fueled by the owner’s knowledge that the design professionals have successfully completed so many projects before.

The nature of the design process is such that each project is unique – the first and only one exactly like it. This can be contrasted to a manufactured product that is perfected over time. Consumers buy products expecting perfection or make a trade-off to a lower priced option. Take, for example, a new car, which will be reproduced thousands of times. If you find a defect, you take it back to be corrected under warranty. This is because a manufactured product can be “perfected” through product testing, design improvements and manufacturing process improvements during the life of the production line for that particular model and its predecessors. While the engineering, design and construction community continues to improve its methodologies and learn from the past each project is different with its own unique challenges.

This Practice Note goes on to point out that thinking of the engineering and design process as a product has lead to some common misconceptions:

• Contract documents are 100% complete, free of any defects and contain everything needed for the construction contractor to do the job.
• No change orders are to be expected.
• No contingency budgets are necessary.
• Any construction change order probably stems from a design fault.
• Once there is a construction contract, the owner only has to pay for changes in the work that the owner initiates.
• All extra costs are damages regardless of their origin (e.g. project improvements or changes at the request of the owner should be borne by the owner).
• Design professionals are responsible to see that the construction contractor builds it right.
• Professional liability insurance is a no-fault policy.
• Design documents or construction contract documents are “guaranteed” or come with a “warranty” to be free from defects and fit for the intended use.

To read more and pick up some real-life risk management strategies to aid in this tricky process, please visit our website. The free, full-length PDF version of this Practice Note is available.