E&O: Errors & Omissions

Standard A&E

Opportunities

The architects and engineers ("A&E") professional liability segment can be a significant opportunity for new sales. This segment of professional liability covers a wide range of types of organizations, from standard architectural firms to unusual engineering firms.

The Profession

What is an architect?

An architect is a design professional who uses creativity and a practical understanding of structures and materials to provide for people's living and working environments. In satisfying human needs for shelter, architects must take into consideration factors such as: aesthetics; the personal tastes and needs of the client; the site; materials; costs; and environmental factors.

Originally the architect (from the Greek work arkhitekton meaning 'head builder') was the leading stone mason on large buildings such as temples and cathedrals; today the architect's role ranges from coordinating a team of consultants designing buildings to being a community advocate.

The role of the architect in the twentieth century has been that of a coordinator of a team of consultants (such as structural, mechanical and electrical engineers, quantity surveyors, land surveyors, property consultants, etc.) involved in the process of designing a building. More recently, this role has changed owing to the increasing complexity of property development, construction techniques etc., so that, on very large projects, the architect's role in project management is increasingly important.

There are approximately 115,000 licensed architects in the U.S. Licensure is the highest form of professional regulation, and all 50 states require an individual to be licensed in order to call him or herself an architect. Each state establishes its own professional standards for architect licenses, and architecture registration boards in all 50 states, the District of Columbia, and four U.S. territories, require that candidates satisfy those standards for education, training, and examination. An industry profile can be found by clicking here.

What is an engineer?

"The profession in which a knowledge of mathematical and natural sciences gained by study, experience and practice is applied with judgement to develop ways to utilize, economically, the materials and forces of nature for the benefit of mankind." Engineering involves the use of scientific discoveries and practical knowledge to create devices, structures, processes, materials and systems that can be used to benefit people. Engineers go wherever their projects lead them - indoors, outdoors, to a research lab, to ice-capped arctic islands, to the bottom of a mine shaft, to a high-rise office tower.

Types of architects and engineers can include the following:

Exposure

The frequency and severity of architects and engineers ("A&E") professional liability claims vary by the type of operation and operating characteristics. The classic A&E claim is a situation where the design provided does not function as anticipated. The most dramatic example, but extremely rare, is a building collapse.

Other claims situations are much more complex. For example, disputes can occur if the professional services provided do not meet a client's expectations. Sometimes these disputes can result in a client seeking compensation from all parties involved. Often there are many A&E professionals involved in the delivery of a complex structure or system, including the insured architect or engineer, and any litigation will involve most or all parties. The resulting dispute will undoubtedly lead to:

The typical claim involves a physical or financial loss by a client due to a negligent error or omission by the A&E professional. An example is a building that is designed with a flaw. The cost to the client might be the cost of removing the flawed structure and replacing it with a correct design.

Often, a claim or lawsuit may not involve a clear error or omission. For example, a client is not happy with the result and brings a claim to obtain a different result or avoid paying a fee. These types of claims are often just as difficult and expensive to defend as a clear-cut error. Insurance typically pays for the cost of defending this type of claim as if it is a clear-cut error on the part of the insured.

Good Risk Management can have a significant impact on A&E claims. Risk management can prevent claims prior to their occurrence and can mitigate claims if they occur.

Professional Liability Insurance

Architects and engineers ("A&E") professional liability insurance, sometimes called errors and omissions or E&O insurance, is available from a wide range of specialty lines insurers. Coverage and pricing varies greatly depending upon the type of professional operation, the specific services provided and its size and location.

An architect or engineer normally requires a policy that provides protection for property damage claims, which most A&E policies cover. However, some A&E firms, such as specialty engineering consultants, operate as specialty consultants and might not purchase an A&E policy form. Since many non-A&E professional liability policies exclude property damage claims, it is important to match the coverage with the specialty services provided by the architect or specialty engineer.

Specific coverage provisions are important for this coverage. Some professionals require coverage with special provisions to protect themselves from unique claims arising from their specialized services. For example, an engineer specializing in pollution control or clean up systems might require a modified pollution exclusion.

A&E professional liability is usually provided to a firm on an annual basis with a policy called a practice policy. The term "practice policy" is used because it covers an architects or engineers entire practice. Coverage is sometimes provided on a project basis rather than a firm or practice basis. Project coverage typically provides professional liability coverage to all professionals working on a particular project for claims arising from that project. Note that some practice policies have an exclusion for claims that are covered under a project policy.

A&E coverage is typically provided on a claims-made basis. Limits and deductibles vary with the size and type of insured. Standard limits for most small A&E organizations start at $1.0 million. Policy forms can vary significantly, but typically are claims-made forms with defense costs either within or outside the limit and deductible.

Examples:

Mercator Risk Services Inc. ("Mercator" or "Mercator Risk Services") has provided professional liability proposals to a wide range of A&E accounts, including A&E firms specializing in the following areas:

Mercator Risk Services provides coverage for a wide range of A&E professionals. Please let us know your client's needs and we will provide you with information and assistance with your particular situation or account, and professional liability coverage.

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