Designing for the Future

Designing for the Future: Exploring How Professional Liability Policies Impact the World of Engineering

Part One

Engineers Week is an event celebrated from February 18th to the 24th. It provides an opportunity to highlight just how important it is to remember the ways in which various forms of professional liability insurance policies can help to better ensure safety and protection. Engineers Week also distinguishes the types of responsibilities that engineers undertake, and the issues that may arise if those very responsibilities are not met. The need for engineers to be correct in their design is not only crucial for society as a whole, but for the lives of individuals as well. People every day trust the engineers who have designed the buildings where they sleep, work, and enter daily.

Although unfortunate, there are times when design defects do occur. When such events happen, not only can people be severely injured, but the engineer could potentially be held responsible for the defect. Engineers are utilized in a variety of different capacities. In fact, the United States Bureau of Labor Statistics (“BLS”) indicated that the employment growth for engineers is expected to increase over a ten-year span, increasing by an estimated 140,000 new jobs being generated from 2016 to 2026. Even though the construction industry provides the highest pay for civil engineers, there is still a shortage of engineers working in the industry. One reason why engineers are hesitant to get into the business of construction is due to the pressure that their design will not meet the applicable standards.

There are countless examples that convey the message of how a simple detail overlooked by engineers can result in a terrible outcome. Engineers may think that a tragedy will never occur in the hands of their calculations. However, there is no telling the future, there is only preparing for the future. Having Professional Liability policies (“PL”) or Owners Protective Professional Indemnity (“OPPI”) policies can change the outcome of your future. When the underlying limits of the professional responsibility policy have been exhausted, an Insured could potentially access an excess layer of professional liability coverage via OPPI. Essentially, the OPPI coverage sits above that primary layer of professional liability coverage.

According to The International Risk Management Institute (“IRMI”), PL is a form of insurance that covers an engineer in the event of a mistake. Even experts are not perfect and may create or exacerbate an issue that ultimately leads to a lawsuit. It is a common misconception amongst professionals that they do not need PL on their construction projects. However, professionals can have professional liability exposure at various steps throughout the construction process. Having a PL in place can provide coverage in the event that a professional makes an error. Without this type of coverage, a business could be held responsible for a mistake that was made, which could result in significant financial hardship. According to Independent Agent Magazine, social inflation is having a major impact on today’s society, such as juries determining higher award amounts for plaintiffs, it is incredibly concerning that only one in four contractors have PL. Having a PL in place has the ability to save a professional from paying out of pocket for an error he or she made.

Some key features that are available under a PL insurance policy are as follows:

• Liability Coverage Offerings: PL coverage can include compensation for legal fees, settlements and judgments up to the amount of your policy limit.
• Reasons Needed to Secure a PL: the term “mistake” can be very broad. For example, an engineer could be sued for a mistake that resulted from providing incorrect or inaccurate advice. There could be issues that arise from negligence or a misrepresentation, or from a violation of good faith and fair dealing.
• Professional Liability vs. General Commercial Liability Coverage: Some may assume that having a general liability insurance policy will provide sufficient coverage when such a mistake is made. However, professionals in society are held to a higher standard of care and are, therefore, scrutinized more closely. Individuals secure PL to cover mistakes, or errors and omissions, that were made while an individual was acting in a professional capacity, such as that of an engineer. In contrast, commercial general liability insurance policies (“CGL”) typically cover instances of bodily injury or physical risk.

As explained by IRMI, OPPI is a type of coverage that is offered to the actual owners or developers of a particular project site; its purpose is to extend coverage to the owners/developers of a construction project in the event that damages arise from the work of those professionals, such as members of a design team or engineers. When the limits of PL are exhausted, and an owner is covered by OPPI, the owner will have potential to acquire the excess coverage that OPPI offers as another source or layer of protection. These owners will likely be a party to a contract with design professionals, and, therefore, will need coverage in case something goes awry. Depending on the policy terms, the Insured owners could be covered in the event that they are sued for the negligent acts of the design professionals. Utilizing this type of policy can have significant results due to the potential for the owner/developer’s liability to be significantly reduced.

Some key features that are available under OPPI are as follows:

• Assigned Coverage: When a mistake, error, or an omission occurs, an OPPI policy will help to potentially reduce the liability incurred on the part of the owner or developer of the project that is attributed in whole or in part to a professional’s error or omission.
• Expands Coverage: When engineers or designers obtain PL, and an owner of a construction project purchases OPPI, there is a layer of excess coverage afforded by OPPI to the owner. This means that coupling PL and OPPI will provide additional coverage.

It is imperative to understand how professional liability policies can impact an Insured’s risk exposure. The categories of professionals can encompass more than one may think. Due to this, it is important to review one’s policy terms to determine how a professional is defined.

By: Camee Hughes, In-House Legal Extern for Synapse Partners LLC

Synapse Services offers insurance coverage options for an expansive number of industries. Please contact one of our producers if you are interested in receiving additional information about the availability of insurance options specifically tailored to your industry.