Unless you have experienced a claim, your interaction with your professional liability (“PL”) carrier may be limited to paying your premium. Insurance premiums are one of the most significant expenses A/E firms face on an annual basis, and they’re getting more costly. However, the amount that design professionals pay for errors and omissions coverage is only one of a number of important factors to be considered when selecting a PL carrier and policy. The prudent design professional (ideally with the assistance of an A/E specialist broker) should carefully vet more than just the premium to ensure that the PL carrier and policy align with the firm’s budget and needs.  

If you have been through a claim, you likely discovered that the contents of your policy can are as impactful as the annual premium.

Limits/Deductible

The insurance limit is the maximum amount that the PL carrier will pay for a covered claim under the policy on both a per-claim and aggregate policy year basis. By way of example, if you have a policy with a per-claim limit of $1 million and an aggregate limit of $2 million dollars and a single claim exhausts the per claim of $1 million, the remaining limits on your policy for all other claims in that policy year is $1 million. 

Costs incurred in defense of a claim (e.g., attorney’s and expert’s fees) usually erode a PL policy’s available limits. The prudent design professional must ensure that it has appropriate limits for its practice type and project mix. In addition, requiring your consultants to carry adequate limits is a critical risk management practice and reduces the risk of you and/or your carrier picking up the entire tab for an error or omission caused by an under-insured consultant.  

The insurance deductible/self-insured retention (“deductible”) is the amount that the insured must pay on an otherwise covered claim. Typically, a deductible is due on each claim made during a policy year. Deductibles can range from $0 to six figures or more. Understanding how your deductible applies and when that obligation is due (in many cases before the PL carrier has any obligation to pay anything on a covered claim) requires appropriate financial planning to ensure you comply with your financial obligations under the policy.

Supplemental Coverage Features

In addition to standard coverage for errors and omissions, insurance carriers offer a range of supplemental coverage features that can apply to a variety of situations encountered by design professionals. Typically, utilizing these supplemental coverages does not trigger your deductible obligation, impact your available insurance limits, or adversely impact your premium. 

• Subpoena Coverage. For example, in a lawsuit between a contractor and owner, design professionals are often served with a subpoena for documents by one of the parties. Supplemental coverage for responding to a subpoena (including retention of legal counsel) can be a valuable feature of your policy, and significantly reduce your administrative burden, and lessen internal costs that are unlikely to be reimbursed by the requesting party. 
• Pre-Claim/Loss-Prevention Assistance. Where there are issues on a project that might reasonably be expected to be the basis of a claim, but the design professional hasn’t received notice of a claim, pre-claim services may be available. In these instances, your insurer may elect to retain legal counsel on your behalf (or incur other costs/expenses investigating the circumstance) with the objective of resolving issues before they mature into a claim or a lawsuit. 

Counsel Selection 

If you already have a relationship with a particular lawyer or law firm, some insurance carriers allow their insureds to select the attorney that they want to assist them with a claim or other covered event. However, other carriers retain the right to select counsel and are reluctant to waive that right. 

Design professionals perform specialized work, and the ability to leverage this knowledge often requires specialized counsel. Legal counsel is intimately involved when navigating a claims process, complying with a subpoena, or any other covered event, and design professionals can have a leg up (both from a cost and quality of representation perspective) by working with an attorney who already knows their business and understands their objectives. 

Conclusion 

While your annual insurance premium should be a consideration when selecting your PL carrier, it should not be the only consideration. If selecting the attorney to defend a claim is important to you, or if your firm would benefit from supplemental coverage for pre-claims or subpoenas, make sure that the PL products you are considering have those features. Whatever your firm’s needs, a solid understanding of PL coverage will ensure that you have the right policy in place before you need it. 

Curtis A. Orshoski and Daniel M. Eggleston are lawyers at Lee/Shoemaker PLLC, a law firm devoted to the representation of design professionals with offices in Washington, DC and Charlottesville, Virginia. The content of this article was prepared to educate related to potential risks but is not intended to be a substitute for professional legal advice.