Design Professional Insight: Top Ten Insurance Myths
A myth is a widely held but false belief. Unfortunately, there are plenty of myths about insurance coverage. To bust those myths and help architects, engineers and other design professionals understand what professional liability insurance does and does not cover; XL Catlin’s Design Professional insurance team addresses some of the most common insurance coverage misconceptions.
1. Contractors’ mistakes are covered by insurance.
False. A contractor’s general liability coverage insures primarily against bodily injury and limited types of property damage. Among other things, a general liability policy does not provide coverage for project delays, but a professional liability policy does. If you are working on a project that is behind schedule, expect the contractor to tell your client that the poor set of construction drawings is to blame. If this is happening to you, give your XL Catlin broker a call. A loss prevention file can be opened for you, and one of our skilled claims consultants can work with you to find a solution to the problem.
2. It’s not a problem to agree to add my client as an additional insured on my professional liability policy.
False. You cannot add your client as an additional insured on your professional liability policy, even though the contractor’s general liability policy will allow this. Not only does the insurance industry not provide this coverage, but if it did, it would likely be rendered meaningless, because most project owners are not rendering professional services, the thing that your policy covers. Moreover, the Insured v. Insured exclusion would bar coverage for any claims made by your client. Finally, since legal expenses erode your policy limit, you need to ask yourself whether you would ever want to name someone else as an additional insured on your policy. Our insureds are seeing these requests more frequently, due in large part to a misunderstanding by clients, and the fact that contractors can actually do this on their general liability insurance policies
3. My policy covers me for anything I agree to in the contract with my client.
Not quite. Your policy covers you for negligent errors and omissions while providing professional services like architecture and engineering. All professional liability policies have a contractual liability exclusion that says nothing you agree to in a contract is covered by insurance unless you would owe that obligation in the absence of a contract. For example, things like agreeing to design a 100% perfect set of plans or agreeing to defend your client from any lawsuits would not be covered. However, XL Catlin understands the tough contracting environment out there and has included an amended definition of damages endorsement to address contractual liability for legal expenses. Your XL Catlin policy will now reimburse your client for defense costs that you contractually agree to pay once there has been a determination by a court or arbitrator of how much you owe in response to a covered claim. In reality, our claims consultants will look for opportunities to get our insureds out of harm’s way well before a trial.
4. If I limit my liability in my contract to my insurance limits, I’m fine.
False. Professional liability policies have an aggregate limit – the total amount the policy will pay out in a single term. The policy limit can be eroded by other claims and defense costs that are incurred during the same policy year. If there is very little money left on your policy and you sustain a large claim, you may end up running out of insurance. A better option is to limit your liability to a lower amount, but include the language “but in no event shall the Consultant’s liability exceed the amount of available insurance.” This protects you against large claims when the policy limit is not fully in place, and it also protects you against uninsured claims; i.e., if the policy does not cover it, you don’t owe it.
5. If I retire from my firm, I need to buy separate insurance to cover myself.
Not necessarily. Generally, your XL Catlin policy will cover you if you retire for covered claims arising out of the professional services you rendered when you were working. The definition of an Insured includes retired partners, principals, directors, officers and employees. Since professional liability policies are claims made and reported policies, your old firm will need to renew the policy each year. If you are a small firm or sole practitioner, you should talk to your broker well in advance of retirement. Your strategy may include purchasing a tail policy, or extended reporting period, and taking more of an aggressive stance in managing your risk through better contracts, client and project selection years prior to your retirement.
...be mindful of limitation of liability clauses in subconsultant agreements that can put your policy at risk in the event of a claim."
6. If my computer system is hacked, because I forget to update my virus software, I’m not covered.
Not true. Your XL Catlin policy insures you against mistakes you might make in managing the security of your computer network resulting in covered damages caused by unauthorized use of your system. Talk to your broker to find out more about this coverage.
7. If I hire a subconsultant on a project, I should have nothing to worry about if they have insurance.
Not always. If you hire a subconsultant, you are contractually liable for that entity. If they don’t have enough insurance to pay for a loss, your policy may be triggered. Always ask about the available insurance limits, and be mindful of limitation of liability clauses in subconsultant agreements that can put your policy at risk in the event of a claim. Regardless of the contractual arrangement between you and your subconsultant, XL Catlin always recommends an open dialogue between parties, especially during the contract negotiation phase, to make sure
that everyone understands the risks and rewards of the deal.
8. If I don’t mediate a case, then I can’t get a discount on my deductible.
Not really. While XL Catlin is a proponent of mediation, sometimes this is not an option. The other party might not agree to it, or you might just want to resolve a problem quickly without getting lawyers involved and going to mediation. Your XL Catlin policy has a Mediation Credit and a Contractual Risk Management Practice Credit. You get to choose which one you want! These two credits are unique in that few insurance companies offer these types of credits and at this level.
9. If a licensing board initiates an investigation against me, I am on the hook for my own defense.
False. The XL Catlin policy will provide up to $50,000 of reimbursement to you for reasonable legal fees and expenses you incur when the underlying event arises out of a wrongful act committed after the retroactive date on your policy, regardless of whether the wrongful act happened when you were insured by XL Catlin. The $50,000 reimbursement amount is more than most other carriers offer.
10. Attending a mediation or participating in a trial or deposition are costs that I will never get to recoup.
Not exactly. Your XL Catlin policy will reimburse you upon written request for actual loss of earnings and reasonable expenses that you incur attending a mediation, arbitration, hearing, deposition or trial relative to the defense of a claim up to $500 per day with a $25,000 maximum. We understand that inconvenience that comes with helping to defend a claim, and this supplemental coverage is designed to soften the blow of missing out on billable activities.
Download a copy of these 10 myths here.
Want to bust more insurance myths and learn about our coverage for design professionals, contact our Design Professional insurance team at 800 227 8533 x21022508 or visit our website at xlcatlin.com/dp