Professional Liability (PL) insurance is a critical protection for architecture and engineering (A&E) firms. It mitigates risks associated with mistakes, omissions, or negligence in the services provided. However, to effectively protect your firm and ensure that coverage is triggered, it’s essential to understand the nuances of a PL policy, particularly how claims should be reported and managed. This article outlines key aspects of A&E PL insurance policies and provides guidance on what to do if a claim is made.
Claims-Made Coverage: What Does It Mean?
A&E Professional Liability (PL) policies are generally written on a “claims-made” basis. This means that the policy covers only claims that are made and reported within the policy period.
For insured firms, this means that if a claim arises from a project during the policy period, it must be reported to the insurer before the policy expires.
Reporting Claims: Timely Reporting is Crucial
A claim is any demand for money, services, or damages, and it's important to report all potential claims as soon as you become aware of them. WTW A&E advises clients to report all PL claims, regardless of their perceived validity. Reporting claims timely is the most effective way to preserve coverage. Delays or failure to report claims can lead to denials of coverage, which can leave your firm exposed to uninsured risk.
Even if you believe the claim may be unfounded, or the situation might resolve under the deductible, it is still advisable to report it. Prompt reporting helps the insurer evaluate the situation and provide you with the necessary support.
Potential Claims: Identifying Early Warning Signs
A “potential claim” refers to any circumstance(s) that may reasonably result in a formal claim. This could include a variety of events such as:
- Change order requests alleging errors or omissions in your drawings or designs.
- A jobsite accident involving a contractor or third party.
- A subpoena for documents or testimony related to a project.
While these events might not immediately result in a claim, it’s essential to report them to the insurer. The insurer can then assess the situation, determine potential risks, and provide guidance on how to proceed. Most PL insurance companies will provide pre-claim assistance at their own expense, without invoking the deductible obligation.
Key Policy Obligations for A&E Firms
When managing a potential or actual claim, there are several critical obligations that your firm must uphold under the policy:
- Notify the insurer as soon as practicable once a claim or potential claim is identified.
- Obtain prior written consent for defense costs before engaging legal representation.
- Do not admit liability, make payments, or settle claims without the Insurer’s prior consent.
These steps are crucial to ensure that your firm is protected, and that the insurer is involved from the outset to provide support and ensure the coverage is applied correctly.
How to Report a Claim
Each insurance policy will include specific instructions on how to report a claim. WTW A&E encourages clients to send us a written notice of the claim, which can be used to initiate the reporting process. Once the claim is reported, we track the acknowledgment of the claim in our system to ensure that it is being processed.
What Happens After a Claim is Reported?
Once a claim is reported, the insurer will typically reach out to initiate an investigation. It is important to prepare by gathering all relevant documentation related to the project, including contracts, correspondence, and other records. Additionally, it’s crucial to retain all documents related to the project during the investigation, including emails, text messages, and other electronic communications. This is often referred to as a “litigation hold.”
Be mindful not to discuss the case with others outside your firm (other than your insurance carrier and your attorney) as this could compromise the case and the firm’s legal position. Internal emails or written communications that criticize the performance of your team or your firm could also be discoverable in litigation, so it’s important to maintain a professional tone and refrain from commenting negatively in writing.
Consent to Settle: Understanding Your Role
In most A&E PL policies, the insured must consent to any settlement. This means you have the right to evaluate liability and potential outcomes carefully before agreeing to a settlement. Keep in mind that most insurers have policy language that says if you do not consent to a settlement recommended by the insurer, the insurer can cap their liability at the amount the case could have been settled for.
Acknowledgment and Reservation of Rights (ROR)
When a claim is made, the insurer will send an acknowledgment letter. In some cases, the insurer may include a reservation of rights (ROR) letter. This letter means that while the insurer is investigating the claim, they are reserving the right to deny coverage if they determine that the claim does not meet the policy’s terms. It's essential to review this letter carefully and discuss any concerns with your broker. WTW A&E can help advocate on your behalf in these situations.
Choice of Counsel and Legal Representation
In most cases, insurers may provide a list of panel counsel from which to choose, but many policies allow firms to select their own counsel with pre-approval from the insurer. If your firm has preferred attorneys, particularly those who specialize in design or construction law in the states or provinces where you do business, it’s important to seek carrier approval as early as possible. insurer's payment of defense costs will reduce the amount of available policy limits, which could affect the outcome of any settlement discussions
Reporting to All Layers of Insurance
It is important to report the claim to all relevant layers of coverage, including primary practice policies, excess policies, or a project-specific policy; Failure to report claims across all applicable policies could result in a denial of coverage, especially if the claim exceeds the limits of the primary policy.
Pre-Claim Assistance: Preventive Support
In some cases, coverage can be triggered before an official claim is made. For instance, expenses related to subpoenas or depositions related to a project can often be covered under the firm’s Professional Liability policy, typically at no charge. It's always a good idea to contact your insurer or broker for guidance if such events occur.
General Liability (GL) Coverage
If a claim involves bodily injury or property damage—such as an accident on the job site—it may also be covered under a General Liability (GL) policy. However, most GL policies have exclusions for professional services, which typically include supervisory services or activities tied directly to your professional expertise. When claims involve both potential professional and general liability, it’s important to review the details of the allegations with your broker to determine whether GL coverage may be applicable.
Conclusion
Professional liability claims can be complex and costly, but with proper reporting, adherence to policy obligations, and effective communication with your insurer, your firm can navigate the process and ensure that coverage is in place when it’s needed most. Always remember, timely and thorough reporting is key to maintaining coverage and protecting your firm's interests.
