Answer: Engineers: Claims

Elevation Error

A civil engineering firm was retained by an architect to provide an elevation survey for a boathouse project on one of the Great Lakes. The boathouse owner insisted that the structure be located as close to the water as possible, despite the engineer cautioning the owner against doing so, because of the potential danger posed by “storm surge”. After the piers were drilled and the initial grading completed, the owner had a change of heart. He directed that the structure be located 25 feet further from water. Further, he proceeded to insist that the engineer pay for $500,000 in additional costs on the grounds that they did not adequately inform the owner of the potential danger from the storm surge.

Sinking House

A structural engineer was retained to design the foundation for a single family home in the Rocky Mountain region. The engineer’s design was based on a soils report prepared by a geotechnical engineer retained by the contractor. Approximately six months after the house was completed, the floor slab began to experience differential settlement throughout the house. Doors and windows were out of plumb and there were extensive cracking in the floors, walls and ceilings. It appears the house was built upon an ancient slide plane that was not detected by the geotechnical engineer during his investigation.

Gas Explosion

A civil engineer was hired to design a new water line for a city water system. The new line was located near various other utility lines. The engineer was hired to provide on site monitoring of the placement of the new line. On the day the engineer was watching the placement of the water line, another contractor was smoking a cigarette at the same time the gas line was breached. An explosion resulted and the employee suffered burns over 70% of his body. Suit was brought against all of the parties involved on the construction project.

 

Answer: Architects: Claims Made v. Occurrence Insurance Coverage

Claims made policies provide coverage for claims that are made during the period of time while a policy is in force. Claims made policies will provide coverage for as long as the insured maintains continuous coverage – the initial policy and subsequent renewals. Once a policy is cancelled or non-renewed coverage will not exist for claims that are not known or delivered to the insurer.

In order for coverage to exist under a claims made scenario an architect or engineer would have had to have a policy in place at the time that the services were rendered as well as at the time that a claim is delivered.

Occurrence coverage is provided for claims stemming from an event when an insurance policy was in force even if the claim is not made for several years and the policy is no longer active.

Answer: Architects: Case Studies

Chimney Fire

An architect designed a single family residence that several years after it was constructed suffered a fire that originated in the chimney and flue and spread to the roof. After the homeowner’s insurance company paid for the damages and to rebuild the house it notified the architect that it was seeking $350,000 from the designers and contractors of this house alleging that design and construction defects in the chimney caused the fire.

Falling Panel

An architect was retained to design a new performing arts center. In order to cut costs, the city took over construction administration. Some of the finish work in the auditorium included installation of veneer core modesty panels for the front row of the balcony. After completion of the project, one of these modesty panels fell upon a patron sitting in the main level as a result of a child kicking on the panel during the event. Suit was brought against the city and the city filed a third party complaint against the architect.

Sound Attenuation

An architect was retained to design a 104-room hotel. After the project was completed and opened for occupancy, the hotel owner began receiving complaints about excessive noise between rooms, in addition to excessive noise between floors. The hotel has now brought suit against the architect alleging that their design failed to incorporate appropriate sound attenuation design. The cost of remediating the problem is estimated at $500,000. In addition, the hotel is making a claim for loss of revenues, due to the unavailability of various rooms during the remediation process.

Cost Overrun

An architect that specialized in church design was retained to design a new church. The church told the architect they were on a limited budget. The insured completed their design and included a preliminary cost estimate of $4 million for construction. The church hired a contractor specializing in building churches. Approximately half way through construction, the insured terminated their services due to nonpayment of their fees by the church. The project was ultimately completed at a cost of $6 million. Suit has been brought against the architect alleging failure to develop a design within budget.

Choice of Materials

An architect was retained to design a single family home in an upscale neighborhood. During the pre-design process, the architect discussed the various types of exterior cladding that could be used for the house; namely, brick, wood and stucco. The architect discussed the pros and cons of each material, including the initial cost, maintenance, durability and appropriateness for the particular climate. Based on this discussion, the clients chose the stucco exterior. Approximately two years after the project was completed, the owners noticed leakage occurring in various parts of the home. An investigation revealed that the stucco was not effective in preventing water intrusion. The owners brought suit against the architect, alleging that the architect failed to warn them that stucco was not an appropriate choice of building materials in this particular area of the country.

Code Violations

An architect was hired to design a new condo project. During the course of construction, the general contractor claimed that he had to make various changes to the construction due to changes in the building department requirements and interpretations. The fire separation assemblies that were originally identified were found to be out of date. The sizes of the framing members that were identified in the assemblies were no longer available on the market. Consequently, the architect was required to provide detailing that added gypsum board to the assemblies to satisfy the building department’s requirements and interpretations. The change order requested by the contractor was in excess of $250,000.

Answer: How Do I Apply For Coverage?

To apply for coverage please fill out the application form by clicking here.

Answer: What Markets Are Available?

  • ACE
  • AIG
  • Arch
  • Aspen
  • Axis
  • Beazley
  • Berkley
  • Catlin
  • CNA
  • Hanover
  • Houston Casualty
  • Ironshore
  • Liberty International
  • One Beacon
  • Navigators
  • RLI
  • Travelers
  • Zurich

Answer: What Other Coverage(s) Should I Consider?

Commercial General Liability

General Liability Insurance is designed to protect the assets of a business when it is sued as a result of causing either bodily injury or property damage arising out of premises, operations, products and completed operations; and personal and advertising injury.

Landlords often require this coverage as a condition to signing a lease. Project owners and lenders often require design firms to maintain this coverage and include them as an additional insured.

It is important to confirm that the policy provides “off premises coverage” because the design consultant and their employees are often visiting job sites.

Business Property Insurance

Business property insurance is designed to protect your office, computer equipment, furniture and fine arts against losses caused by fire, theft and water damage. It is important to properly inventory equipment because the policy will typically provide reimbursement based on “replacement cost”.

When leasing furniture or office equipment, the lessor will often require this coverage. Landlords would often require tenants to maintain property coverage for a rented space.

It is important to confirm that the policy provides “off premises coverage” because the design consultant and their employees are often visiting job sites.

Valuable Papers Coverage

This policy pays the cost to reconstruct damaged or destroyed valuable papers such as maps, plans, specifications or books. Typically a blanket limit is established to cover all valuable papers on a replacement cost basis.

Hired & Non-Owned Auto Liability

Businesses that own vehicles are required to purchase a commercial auto policy to protect the business and driver from bodily injury or property damage claims that are caused during the operation of the business owned vehicle. Hired & Non-Owned Auto provides coverage for accidents involving hired or rented vehicles or vehicles that are owned by employees of the firm while providing professional services.

Umbrella Liability Insurance

Umbrella liability is designed to provide coverage for losses that fall above the limit of liability available on underlying policy (typically general liability, automobile and employers liability). Often times the umbrella policy provides coverage for many exclusions of a primary policy. If this is the case, the claim would be subject to a self-insured retention that the insured would pay prior to payment by the insurer.

Workers Compensation/Employers Liability

Most states require employers to procure both Workers Compensation and Employers Liability when hiring an employee. Workers Compensation provides employee compensation as well as lost income and medical expenses as a result of bodily injury by accident or disease associated with a job-related activity. Employer’s Liability pays damages (that result directly from an employee’s job related injury) for liability to a third party for damages claimed by the employee against a third party.

Premiums are based on the payroll and job description of the employee. It is important to collect evidence of such insurance for 1099 consultants.

Failure to provide coverage for employees will result in substantial fines by the State Workers Compensation Board.

Statutory Disability Benefits

Similar to Workers Compensation, most states also require employers to provide short term disability coverage to employees. The policy provides limited income (varies by state) to an employee that is unable to work due to a non job-related injury or sickness. As mentioned, benefits are extremely limited in terms of both duration and compensation and should not be substituted for long-term disability insurance.

Failure to provide coverage for employees will result in substantial fines by the State Workers Compensation Board.

Employment Practices Liability Insurance

This is a form of liability insurance that covers wrongful acts arising from the employment process. Most frequently these claims include wrongful termination, discrimination and sexual harassment. State and Federal laws apply differently to different size firms, however, any employer can be susceptible to employment practices claims.

More often than not underwriters will request a copy of an office manual that details policies relating to harassment and discrimination and procedures for handling employee complaints.

The above policies are typically maintained by most design firms. Many other policies exist and you are encouraged to contact our office to discuss questions you may have.