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What is Professional Liability Insurance for Architects and Engineers?

As a design professional, architect, or engineer, it is essential to effectively run your firm and shield it from liability resulting from errors or omissions. E&O, or Professional Liability Insurance, offers aid if an architect or engineer practice is caught in a predicament. An E&O policy will protect your design firm's assets from professional liability claims and lawsuits.

If a customer feels an error was made by your engineer while working on their project which caused them to lose money, maybe a delay in opening or some other additional cost, they may make a claim against your company or sue. Professional Liability pays claims that General Liability doesn’t. While General Liability pays claims for physical bodily injury or property damage, for design professionals, professional liability is designed to respond to a client’s financial loss.

Any job or bid request your design firm wants to work on will require your company to demonstrate proof of your Professional Liability insurance. This is why it's good to be ready for unexpected opportunities. Without Professional Liability insurance, your company could face high legal costs if an error occurs and miss project opportunities as an architect, consultant, or engineer.

The cost of a Professional Liability insurance policy for an A-rated architect will vary based on the firm’s revenue, the number of licensed staff, the variety of projects completed, area of operation, and claim history.

Professional liability policies for most industries are written on a “Claims- Made” policy form. A claims-made policy form differs from what most people are familiar with, the “Occurrence Form” which is how homeowners and personal auto policies are written. These two types of coverage forms are different when it comes to the coverage period and the “claim trigger”. Besides Professional Liability, Employment Practices Liability, Directors & Officers Liability, and Cyber Liability are also typically written on claims made in policy form.

An occurrence form annual policy covers claims for incidents that occur during that policy period only. The claim may be made in the same policy term or at a later date but as long as coverage was in effect at the time of the incident that caused the claim, then coverage is applicable per the policy’s terms and conditions.

With a claims-made policy, both the incident (wrongful act) that the claim resulted from and the date the claim is formally made (to the insured and insurance company) must both be within the policy term. The exception is if there is a “retroactive date” on the current policy, then the incident could have occurred any time after the retroactive date. When claims-made policies are first issued, that first effective date becomes the retroactive date that stays constant through future renewals. With uninterrupted claims-made policies, the retroactive date could be 2 years ago or twenty years ago, in essence having 20 years of covered services with today’s policy term.

Other Recommended Insurance for Designers, Architects, and Engineers

General Liability Insurance

General Liability insurance protects your business from claims related to bodily injury, customer property damage, and advertising. It helps your business qualify for bidding on projects and real estate leases since these require General Liability Insurance. It is often the second policy (after E&O) professional design consultants should consider. General Liability insurance can cover the expenses related to:

  • Physical injuries to clients or visitors
  • Third-party property damage
  • Fire Damage Liability
  • Personal & Advertising Injury
  • Good will medical payment
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General Liability for Building and Design Professionals

Injuries to others

If a visitor to your office slips on a wet floor and sues your company over the injury, your company will most likely be held accountable for the damages incurred by the injured party, these could be medical costs, economic loss (lost wages), or pain and suffering. The total of these is what the injured will sue your company for and the General Liability insurance company will be there to defend you in the lawsuit.

This policy doesn't cover all injuries suffered by employees; for your protection in these situations, you'll need worker's compensation insurance.

Property Damage to Property of Others

General liability coverage can protect your business when a third party suffers damage to its property because of something your business or employee did or did not do. For instance, if an engineer knocks a client's laptop off the coffee table or your architect spills coffee on a potential client’s clean sofa, your general liability insurance can help cover the expense of repairing the damage. If a dispute arises concerning more expensive repairs, general liability can cover defense costs, settlements, or court-ordered awards.

Advertising Injury

To avoid infringing on a competitor's trademark or slogan, you should promote your company and services differently. Although you may not intentionally mean to copy another company’s trademark, you may still face a lawsuit. For businesses not in the advertising or related industry, accidental infractions of advertising laws are handled via general liability insurance. That includes:

Be sure to discuss whether your insurance includes this coverage with your client.

Business Owner’s Policy

A Business Owner's Policy (BOP) bundle includes general liability insurance and commercial property insurance. It is usually more cost-effective than purchasing these policies separately. A Business Owner's Policy is an effective defense against common incidents that arise in the building design industry.

Commercial property insurance can replace or repair your business-owned assets, building, business personal property, furniture, fixtures, or leasehold improvements for loss or damage by the covered perils in the policy. General liability insurance covers damages or injuries incurred by third parties for which you may be held responsible. A BOP protects against:

Coverage provided by business owner’s policy for building design businesses

Commercial Property insurance covers:

A business owner's policy may compensate you for costs incurred because of theft, vandalism, or a covered weather event. It also covers the costs of fixing and restoring damages caused by a covered peril, like a fire.

Lost Revenue

The loss of a business’s income due to closure can lead to a destructive financial loss. Typically included in a BOP, business interruption insurance will reimburse your company for the loss of income incurred because of direct physical damage to your building, from a covered peril. The building must sustain sufficient damage that makes normal business operations impossible and the loss of income must be a direct result of that closure. For instance, if your work and services provided, are done via computer and online, the work is not tied to your business location. Since your work could technically be performed from anywhere, you might have a hard time making the case for a business income loss.

It would be different with a retail store that only makes money from the store being opened.

General Liability Insurance covers:

Third-party property damage and injuries

A General Liability portion of a business owner's insurance plan can cover legal costs and expenses incurred because of bodily injury or property damage to others. For example, it can provide coverage if:

Libel, slander, and copyright infringement

The liability part of a BOP provides coverage for claims arising from advertising injuries. These include:

For example, if an employee writes a negative review about a competitor interior designer and your firm is sued for libel, General Liability insurance may help cover the legal fees.

Professional Liability Insurance

Also known as errors and omissions insurance, professional liability insurance protects businesses from client lawsuits arising from faulty or inadequate work performed.

When a client accuses you of an error, you must be prepared to face the consequences. Lawsuits for professionals in the construction and architecture industry can be costly, especially for building professionals working on expensive projects. If you create an error on a blueprint or a client files a lawsuit over a color scheme you chose, Professional Liability insurance can take care of legal fees, saving you a lot of money for covered wrongful acts.

This policy provides liability coverage related to:

Professional liability for building design companies covers:

Mistakes and oversights

Being accused of a professional blunder is expensive, even though you might be completely innocent of that mistake. Professional liability insurance can help protect you financially against court costs, attorney’s fees, and any judgments, fines, or settlements related to your legal case.

Failure to deliver promised services

Building construction projects are sometimes delayed, if your architectural blueprints miss a deadline, your client could suffer a financial loss because of the delay. If your customer files a lawsuit against you for failure to meet a deadline, your professional liability policy could provide a lawyer and pay the damages and court costs for covered wrongful acts.

Accusations of negligence

If an architect or engineer’s structural design building fails, your company could be accused of professional negligence. Should your client suffer financial damages and file a lawsuit against you, it can be covered by your E&O liability insurance policy.

Workers’ Compensation Insurance

Workers' Compensation Insurance is required in nearly all states, depending on the number of staff employed. Check the requirements in your state of operation but know that even if your business is not required to have Workers’ Compensation, you will never go wrong with buying this coverage anyway. For design firms, the cost of this policy is negligible if all staff works in the office. It will protect the business from paying the medical expenses and lost earnings of an employee who was hurt on the job.

If an architect becomes injured on a construction site or an engineer develops carpal tunnel syndrome and requires surgery, expensive medical bills and lost working time may be incurred. Workers' compensation pays the medical expenses and wages lost while the injured employee recovers. It can pay for an injured employee’s:

Typically covered in worker's compensation insurance plans, Employers’ Liability insurance defends your company when an employee takes legal action alleging an employer’s negligence caused or contributed to a work-related injury. Even if the lawsuit is completely groundless, the risk of incurring expensive litigation is high.

Cyber Insurance

Cyber insurance provides small businesses with liability coverage that gives legal protection needed for liability claims from clients arising out of a cyber-attack or data breach. Cyber can also provide coverage for the business’s losses as well, it pays expenses, including notification of the breach, credit monitoring, legal fees, and court-ordered fines.

For architects, engineers, and other building design professionals, a data breach can be incredibly detrimental, especially if your customer's payment data is at risk. For this reason, businesses that store and process payment data should have cyber liability policies.

Cyber insurance can cover the cost of data recovery or system repairs and gives essential support and resources for crisis management and public relations expense. This insurance policy provides coverage related to:

  • Data breaches
  • Cyberattacks
  • Ransomware
  • Phishing
  • Malware
  • Denial of service (DOS) attacks
  • Other cyber incidents that disrupt business
web desdigner

Coverage provided by cyber liability insurance for building designers

Developers and other building designers usually need first-party cyber insurance coverage that offers protection against hackers to. For instance, if your enterprise sustained a cyber-assault, cyber insurance would be able to cover the costs incurred to restore your system following this event.

What does data breach insurance cover?

First-party insurance coverage can cover the cost of:

The cost of a data breach for a company can be immense. Due to the small scale of security protection utilized by a small business, it is more susceptible to hackers and cybercrime in general. Cybercriminals often target small businesses since they provide more tempting targets. One frequent type of cyber-attack is an employee inadvertently opening a suspicious email.

Commercial Auto Insurance

Commercial Auto insurance is designed to cover the liabilities arising out of business use of a motor vehicle. Whether you provide your salesmen with company cars or just a few key executives have that privilege, this policy provides the state-required auto liability for bodily injury and property damage where your driver is at-fault (ticketed) for the accident. Other coverage that may be required in your state such as Personal Injury Protection, No-Fault, Uninsured or Underinsured Motor Vehicles, will also be included based on your state. Optional coverage such as Medical Payments, Comprehensive, Collison, Rental Reimbursement, Towing, and coverage for permanently attached equipment or vehicle wraps are available as well.

Your employees' driving history is not enough to ensure your car or truck remains accident-free on the road. Even the best drivers on earth can get in an accident. A crash could cause another party to get hurt or your vehicle to get totaled. A business’s balance sheet can be affected by the cost of a car accident, especially when it leads to a lawsuit.

Does your business need commercial auto insurance?

Whether or not your business requires commercial auto insurance depends on what the law requires in your state. Companies that own automobiles are typically required to obtain commercial auto insurance. You should also consider if you have employees driving personal autos for work-related tasks as their liability limits will typically be much lower than your business’s auto liability limits. The employer could be brought into a third-party suit if your employee is in an at-fault accident while making a run to the bank for your company. The company can cover this exposure by adding Employers’ Non-Owned Auto Liability to your business auto policy.