Many hands go into constructing a building. From start to finish, the complete undertaking is like managing a machine with many moving parts. However, it all starts with the design. Architects, engineers, and designers are often responsible for spelling out the initial plan that every other construction team member must follow. Because building professionals typically work within their areas of expertise, they need precise blueprints, strategies, and instruction. If the designer or engineer makes a mistake and the construction worker carries it out, they must correct it. Architect errors and omissions insurance, sometimes referred to as E&O insurance, protects design professionals from claims related to mistakes that occur in the design, planning, and specifications stage of a construction project.
How Can Architects Be Responsible for Errors?
Despite best intentions, humans make mistakes. When dealing with construction, design claims can arise during development project as well as after completion.
With many projects, architectural and design firms must carry insurance. However, there are different types of coverage. Commercial general liability (CGL) policies protect against any claims of bodily injury or property damage to a business. However, it doesn’t provide coverage for mistakes resulting from professional errors.
Architect professional liability insurance (also called E&O insurance) provides businesses with coverage should a client sue claiming professional service failure or advice causing financial loss. The most valuable benefit of professional liability insurance is coverage for legal costs to defend against a claim.
Example Of An Architect Error
An engineer plans to install an HVAC unit in a small attic, and the engineer designates the make and model of the HVAC unit. But nobody measures the space to ensure that the equipment will fit.
The contractor orders all of the parts ahead of time to ensure that the job goes smoothly and adheres to the expected time frame. When the time comes to install the HVAC unit, they discover that it won’t work for the project.
By this point, the HVAC manufacturer won’t take the equipment back. The contractor must research, order, and pay for another unit. The deadline for the construction job extends by a month.
Architects or engineers might be at fault if the measurements were incorrect.
Architects are also at an increased risk because they may be the only professional still in business after the completion of a project. For example, if a developer or contractor dissolves a company after completion of construction, an owner may not be able to go after them when problems related to errors and omissions come up.
The design firm remains liable, and it may be the only entity that remains to deal with negligence claims.
How Much Does Architect Errors and Omissions Insurance Cost?
Architects often generally overestimate the costs of insurance while underappreciating the benefits. The cost of insurance will depend on the following factors such as:
- Type of work (residential, commercial, etc.)
- Year in business
- # of projects per year
- Sample contractors with clients
- Resume (inc. prior work)
- Prior claims history
Architects and firms who are researching insurance policies might purchase the lowest coverage or cheapest insurance possible. However, insufficient coverage may prevent you from securing substantial income-producing projects.
How Does Architect Errors and Omissions Insurance Help?
If you want to avoid paying significant claims out of pocket, this type of insurance is essential. The most valuable benefit of professional liability insurance is coverage for legal costs to defend against a claim.
In this situation, the insurance company will provide a lawyer to help the architect gather and retain necessary documentation and avoid taking subsequent actions that could weaken the architect’s defense. When a claim does go to trial, the amount of money to defend can bankrupt a small firm. Legal assistance is maybe more valuable than having coverage to pay for actual negligence. As a result, for many architects, errors and omissions insurance is critical for the business’s life.
Many clients require a specific level of coverage. As previously noted, some clients won’t accept bids from a design professional or firm that does not carry insurance. If you hold the lowest coverage available, you may lose out on project bids just because you aren’t well protected.
Every Policy Is Different
Carrying out a change order that occurs because of an error or omission requires time and additional funds. If the responsibility for the mistake falls on the architect, engineer, or designer, those individuals or firms may be liable for paying additional costs.
As an architect or design firm, make sure that you’re getting the proper coverage. That means no cookie-cutter insurance. Your business has specific needs.
Working with an experienced insurance broker can help you find a reputable insurance company that offers the best value for the coverage that you need.
Have questions? Contact me here today.
Opinions expressed in this article are solely the author’s opinion. Not intended to provide the reader with legal or any other professional advice. Should you need advice or opinion, consult with a qualified professional to address your specific needs.