When working as an architect on a construction project of any kind, you will likely need to obtain professional liability insurance. This type of insurance is designed to provide a certain level of protection for the architect’s firm as well as its employees. The coverage an architect receives ensures that the firm is protected against claims and lawsuits that are filed against it.
It’s important to understand that claims can be filed against an architect’s firm or the employees who work at the firm for any number of reasons. While an architectural project is ongoing, there are numerous issues that could arise as a result of negligence, omissions, or errors. If your firm doesn’t have liability insurance, the court costs that would result from a lawsuit or claim being filed could lead to substantial losses and a possibility of foreclosure. Many small architectural firms have closed their doors in the past because of the court costs associated with lawsuits that were filed against them.
Even though some architectural firms overlook the importance of professional liability insurance, this type of insurance is highly important if you want to safeguard your firm against heavy losses. It’s also relatively affordable to obtain this type of insurance policy, which is why you should look into it before your next construction project. In general, you should think about signing up for one of these policies for every construction project you perform. This article offers a more comprehensive guide on professional liability and why it’s important to all architects.
What Does Professional Liability Coverage Cover?
Professional liability insurance provides coverage for mistakes and oversights, negligence, and failure to provide promised services.
Mistakes and Oversights
If you’re accused of making a mistake while on the job, this accusation could prove costly if you don’t have the right insurance in place. In the event that your client files a lawsuit, your legal expenses could be high even if your firm isn’t guilty of the accusation. When you sign up for and obtain professional liability insurance, you would be protected from court costs, attorney fees, or any settlements, fines, or judgments that occur when the case is concluded.
When you provide architectural services, there’s always a possibility that you will make an error as a result of negligence. Let’s say that your structural design ends up failing. If the client filing a lawsuit believes that you were negligent when creating the design and didn’t take certain safety precautions into account, they may file a lawsuit claiming that you were negligent. Whatever occurred, your client could have suffered significant financial damages that caused them to file a lawsuit. Regardless of the validity of the claim, your insurance policy will cover some of the costs related to the lawsuit.
Failure to Provide Promised Services
When you work on a construction project as an architect, it’s very likely that some issues will occur along the way. Project delays are common in the construction industry. In the event that project delays cause you to miss the original deadline for handing in the architectural blueprints you’ve created, your client may attempt to file a claim or lawsuit because you didn’t deliver services at the terms you agreed to. Whether justified or not, professional liability insurance would cover most of the expenses pertaining to the claim or lawsuit.
As mentioned previously, if you don’t have this insurance, you would be tasked with paying all of the court costs and settlement expenses associated with the lawsuit. While some larger architectural firms may be able to cover lawsuit costs without issue, most smaller firms would be unable to cover these costs, which would likely lead to bankruptcy. If you want to avoid the headaches that occur when a lawsuit is filed against your firm, your first step should be to sign up for professional liability insurance.
How To Obtain Professional Liability Insurance
Once you’ve made the decision to obtain professional liability insurance, you’ll find that this process can be completed in four separate steps. The first thing that you’ll be required to do is fill out a comprehensive application. The information you place in your application will dictate the type of policy you’re able to receive as well as the costs associated with this policy. The information that must be provided with your application includes the type of project you’re working on, your firm’s entire claims history, any internal organizational policies, and the extent of coverage that you require.
1. Type of Project
Certain construction projects require an ample amount of coverage. For instance, the work you perform on an apartment complex could eventually face lawsuits as a result of a design flaw. If you want to avoid the high costs that occur with this type of lawsuit, it would be wise to apply for professional liability insurance. Keep in mind that the extent of coverage you receive can also depend on the type of architectural services you’re providing. If you work as a landscape architecture, you might not require a large amount of coverage for your next construction project.
2. Complete Claims History
Along with providing the insurance company with information pertaining to all of the claims that have been filed against your architectural firm in the past, it’s also important that you give a history of claims pertaining to projects that are similar to the one you’re currently working on.
Let’s say that six claims have been filed against your firm over the past 15 years. If five of these claims are associated with the same type of project that you’re currently working on, your insurance provider may charge you more. These higher charges come in the form of a higher monthly premium.
3. Organizational Policies
Many architectural firms overlook the necessity of providing information about internal organizational policies. However, if you can prove that your employees have received training about how to avoid making mistakes during construction projects, you may be able to obtain a lower monthly premium from your insurance provider.
4. Amount of Coverage You Require
The total amount of coverage that you need for a construction project depends entirely on the scope and size of the project in question. As touched upon previously, landscape architects tend to work on projects that have very few claims attributed to them, which is why they likely wouldn’t need a large amount of coverage.
On the other hand, larger construction projects would require a higher amount of coverage. You don’t want to be in a situation where you have professional liability insurance but don’t have enough coverage. The majority of architectural projects can be covered completely with a $1 million policy.
The Cost of Professional Liability Insurance for an Architect
Before you send in your application for professional liability insurance, it’s important that you understand how much this insurance costs and if it’s worth the price. Even if you obtain a policy that provides $1 million in coverage, your costs likely won’t be too high. Keep in mind, however, that costs can differ depending on the exact insurance provider you partner with.
The average monthly premium for a professional liability insurance policy is right around $145 per month, which amounts to a total annual expenditure of $1,730. You may be tasked with paying more than $2,000 in annual expenditures if you primarily work on larger projects that require an extensive amount of coverage.
If you obtain a policy that provides $1 million in coverage for every claim, the deductible will likely be around $2,500. Your policy deductible is the amount of money that your firm will be expected to pay before insurance kicks in. The majority of insurance providers will also offer more expensive packages that provide additional types of coverage. However, these policies may not be worth the added price.
On the other hand, the base policies are more than worth the relatively low monthly premium. Since these policies typically provide around $1 million in total coverage, spending less than $2,000 per year likely won’t be too high for your architectural firm. As mentioned previously, your history of claims and the type of project you’re working on will determine how much you pay for this kind of insurance.
Professional liability insurance is almost essential for any architectural firm. Even if you do your best to avoid making mistakes, a claim or lawsuit could be filed against your firm. While you may win the lawsuit, you would still be tasked with paying court costs, which can be very high. Professional liability insurance provides your architectural firm with coverage that protects against future losses.
Some architects overlook this insurance because they believe that the monthly costs will be too high or that the rarity of a lawsuit being filed against them makes the policy non-essential. The truth is that lawsuits can be filed at any time. In general, architects and engineers should consider this type of insurance to protect themselves against client dissatisfaction.
With this policy in hand, you can be confident that most or all of the costs associated with a lawsuit would be covered, which would allow you to continue running your architectural firm without spending too much time focusing on the lawsuit.
Jason Somers, President & Founder of Crest Real Estate
With over 15 years of professional experience in the Los Angeles luxury real estate market, Jason Somers has the background, judgement and track record to provide an unparalleled level of real estate services. His widespread knowledge helps clients identify and acquire income producing properties and value-ad development opportunities.