Professional liability insurance: When to get serious

By Casius Pealer

Nontraditional practices

Many young firms are specialized or employ a variety of innovative corporate structures and delivery methods. These can have a surprising impact on professional liability. For instance, some architects design and custom-build their projects. This is often done for small clients and allows the architects to do custom detailing on-site. However, because the professional liability of a contractor is different than that of an architect or designer, work built by the architect is not covered under the standard architect’s policy. Although many insurance companies offer a design-build endorsement for architecture policies, these only cover issues that arise from the design work done on a design-build project where the builder is a distinct entity. An architect who is personally acting as the builder would need an entirely separate design-build policy.

Or say two architects team up in a joint venture to do a project. Where both parties are licensed professionals, each should have separate insurance coverage, or they may want to get a joint-venture policy specifically covering the work they do together. With a separate policy, liability for any joint projects can then be excluded from the firms’ individual policies. Where a young architect and a nonprofessional—an artist or sculptor, for example—collaborate on a project, the actions of the non-professional may be legally attributed to the architect, but not covered under the standard architect’s policy. In this case, the architect may be able to get a simple endorsement to their existing policy that adds the non-professional as a “limited insured.”

Also, architects who are not licensed often think that they cannot get professional liability insurance. This is not true. Many nonlicensed professionals, such as appraisers, building inspectors, and even social workers provide specialized services following extensive education and training, and thus seek specialized coverage. Although many insurance companies do limit their specific coverage for architects to only “licensed architects,” those companies are likely to have other policies that can cover design work that does not require a license. For instance, a nonlicensed architect doing substantial interior renovations could obtain coverage as an interior designer, or through a design-build policy if applicable. Alternatively, nonlicensed professionals who can demonstrate some basic level of experience can usually get coverage as “specialty consultants.”

Coverage in nonprofit settings

Increasingly, young architects work full-time in nonprofit settings such as community design centers. But professional liability policies covering architects are often available only to licensed architecture firms as defined by state law, and not to nonprofit corporations with just a few architects providing design services. And while it is possible that a nonprofit’s existing general liability policy could cover the organization itself for incidental professional services, the professional providing those services could still be held personally liable for any claim. One solution here is for the nonprofit to acquire what is called a “miscellaneous professional liability” policy. These policies are designed to cover people who are potentially subject to professional liability, but who work in a field that doesn’t have individualized professional liability policies. The basic miscellaneous policy is accompanied by an endorsement covering a specific profession. Although “architect” is not usually one of the professions covered in this way, the nonprofit may be able to obtain such an endorsement. Either way, it is worth noting that nonprofits often have coverage for their board members, which is also called “nonprofit professional liability.” This kind of policy should not be confused with the insurance needed by an architect who is working as a nonprofit’s employee.

Working by moonlight

Young architects who are considering starting their own business sometimes take on side projects while employed full-time. This practice is strictly prohibited by most firms, primarily in order to limit the design firm’s exposure to potential legal claims resulting from the moonlighting employee’s work. However, with careful planning and honest communication, young architects who want to engage in extracurricular activities can do so without creating liability for their primary employers. These employees should first purchase a comprehensive professional and general liability policy in their own names, and should be prepared to provide the employer with the certificate of insurance as proof (this personal policy should also have an explicit exclusion for any work done by the employee on behalf of the employer). The employee should never give an external client even the slightest impression that they are working on behalf of or supervised by their primary employer.

No work should ever be done from the employer’s office—including e-mails and phone calls. The employee should not use the firm’s business card or even a notepad with the firm’s name on it. It would also be reasonable for an employer to ask for formal certification of the above prohibitions.

Believing in the future

Architects are subject to professional liability as a direct result of the higher expectations placed on us due to our specialized education and training. Our work involves complex decisions and responsibilities—designing projects, supervising an office, observing construction, achieving client satisfaction, and ensuring the health, safety, and welfare of the public. Buying insurance is not about avoiding risk, but it is an important part of having the knowledge, the confidence, the resources, and the professionalism to take on and manage multiple risks simultaneously. Firms that take the plunge are optimistic (not merely hopeful) about the future ahead of them.

 

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