Review and understand any new or enhanced supplemental coverages available under your policy and note those most timely and valuable to your firm.
Design firms may want to double-check their professional liability insurance policies for valuable added protections. Increased competition has led some leading PLI insurers to enhance their policies with supplemental coverages to address a wider array of risks confronting design professionals. What’s more, they’re generally available without any additional premium.
Here are five popular and timely supplemental coverages currently available under some PLI policies:
- Claim prevention assistance. This coverage, also known as “pre-claim assistance,” gives design professionals the chance to report circumstances that may become claims early in an effort to resolve them before they actually become claims. No deductible applies and insurers may assign legal counsel to help resolve the situation or avoid a larger exposure. This might apply to many situations, such as if a firm is served with a subpoena for records. When the request relates to professional services, most insurers will assign legal counsel to evaluate the breadth of the information request and push back if it is overly broad. They’ll assist with document exchange, assess the pending dispute and whether your firm is likely to get drawn into it, as well as how to position your firm to minimize potential risks. Pre-claim assistance also can help when an owner or contractor attempts to unilaterally change your design without your consent. Often, such changes are either contrary to the design professional’s intent or increase risk by raising health and safety concerns. Reporting these situations to your professional liability insurer on a timely basis allows the insurer’s claims professional (or pre-claims counsel) to help your firm navigate through the issue. Correspondence detailing the owner – or contractor – directed change typically is needed to document the situation and protect against potential liabilities. Be sure to follow the policy’s reporting requirements, including giving the insurer sufficient detail for a preliminary evaluation of the circumstance.
- Rectification/mitigation coverage. This supplemental coverage may apply when you identify a design-related problem that could result in a claim. In such cases, your PLI insurer may pay remedial expenses to correct the problem and minimize the potential exposure. Suppose water intrusion is identified on a project and your firm is reasonably certain it’s at least partly due to a design defect involving the building envelope. If your policy provides rectification coverage, you would report the matter to the insurer before a claim is made by the owner or contractor. The insurer and your firm will then work out a solution with the insurer paying the cost to correct the problem, subject to the rectification coverage sublimit, deductible and applicable coinsurance. A key caveat: Don’t admit or concede liability to the client or prospective claimant without first seeking and obtaining the insurer’s approval. Such mistakes may jeopardize any potential coverage. Similarly, don’t commit to pay for any repairs or damages without first getting your insurer’s written approval.
- Disciplinary or regulatory action coverage. Many PLI policies now include a supplementary coverage in addition to the policy’s limits that reimburses an insured firm for legal fees and expenses incurred in the defense of a disciplinary or regulatory action. While not subject to the policy’s deductible, the coverage typically has a sublimit. Examples include disciplinary hearings by the governing professional board or violations of the Americans with Disabilities Act of 1990 as a result of professional services on a project and similar matters.
- Limited cyber insurance. Some A/E PLI policies provide a minimal level of cyber security coverage to assist the insured with third-party benefits as a result of a cyber breach and theft of confidential client information. This won’t take the place of a robust stand-alone cyber-liability insurance policy or cover losses arising from social engineering schemes. However, it could provide limited coverage to assist insured design firms with breach investigation and response, often including the cost of required credit monitoring for clients directly affected by the breach.
- Dodd-Frank. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires municipal advisors to register with the U.S. Securities and Exchange Commission. Because they provide advice to a municipal entity on financial products or securities, they have a fiduciary duty to the municipal entity. While the SEC does not require engineers to register as municipal advisors for providing engineering advice, such as feasibility studies, cash flow analysis, and similar services related to a project’s engineering aspects, the exemption does not apply to advice an engineer might provide regarding municipal financial products, financing, or the issuance of municipal securities. Several insurers have added supplemental coverages to reimburse design firms for legal fees and expenses incurred in responding to regulatory or administrative actions brought against them under the Dodd-Frank Act. Typically, the coverage applies only when the actions arise out of professional services allegedly committed by the insured. It typically does not reimburse insureds if the actions involve services performed by the insured in the role of municipal advisor.
Other popular supplemental coverages address media/personal injury liability that extends beyond copyright infringement to include other exposures related to professional services; pollution arising from professional services as well as from the performance of contractor services; and coverage for crisis events, including the costs of consulting services (such as public relations firm expenses) to help preserve the insured firm’s reputation.
Keep in mind that not all the coverages described in this article are available from all insurers. Take time to review and understand any new or enhanced supplemental coverages available under your policy and note those most timely and valuable to your firm.
Wayne Marshall is vice president of Ames & Gough and head of the firm’s New York operations. He can be reached at email@example.com.