Engineers' and architects' professional liability insurance policies are "indemnification policies" which means that the insurance carrier agrees to "make whole" any party that suffers loss or injury resulting from "negligent deliverance of professional services" up to the available limits of the professional liability insurance policy. Negligence is the operative word meaning that the standard of care is the "ordinary man" standard (not perfection).
It is a misfortune that many contract drafters that are used for architects' and engineers' professional services do not understand a professional liability insurance policy has no provision within the policy to provide "defense" to anyone outside of the design professional (unlike in a General Liability policy's "additional insured" provision providing affirmative defense of a third party).
Most owners are not educated properly to understand the implications that differentiate engineers' or architects' professional liability insurance policies from a contractor's general liability policy.
Perhaps you are wondering why this is not insurable. Professional liability is brought on by "actual or alleged negligence" and solely benefits the design professional. To grant affirmative defense to a third party due to alleged negligence is outside the policy's provisions. Professional liability policies will compensate an owner for costs accrued in their defense as long as the architect or engineer was actually negligent.
Additionally, ALL professional liability policies for engineers and architects contain a CONTRACTUAL LIABILITY exclusion that states that the only contractual coverage granted by the policy is "such liability that would have existed in the ABSENCE of a contact." [In short, this means that even without a contract the Design Professional is always held to the negligence standard of care.]
Clearly, you should remove the word "defend" from the professional liability policy contract and make sure that the balance of the indemnity provision is correctly based on your "negligence." Now, the only question is: "What do I actually do when the owner (or their attorney) recoils at the removal of the word "defend" from the contract? - 32196
It is a misfortune that many contract drafters that are used for architects' and engineers' professional services do not understand a professional liability insurance policy has no provision within the policy to provide "defense" to anyone outside of the design professional (unlike in a General Liability policy's "additional insured" provision providing affirmative defense of a third party).
Most owners are not educated properly to understand the implications that differentiate engineers' or architects' professional liability insurance policies from a contractor's general liability policy.
Perhaps you are wondering why this is not insurable. Professional liability is brought on by "actual or alleged negligence" and solely benefits the design professional. To grant affirmative defense to a third party due to alleged negligence is outside the policy's provisions. Professional liability policies will compensate an owner for costs accrued in their defense as long as the architect or engineer was actually negligent.
Additionally, ALL professional liability policies for engineers and architects contain a CONTRACTUAL LIABILITY exclusion that states that the only contractual coverage granted by the policy is "such liability that would have existed in the ABSENCE of a contact." [In short, this means that even without a contract the Design Professional is always held to the negligence standard of care.]
Clearly, you should remove the word "defend" from the professional liability policy contract and make sure that the balance of the indemnity provision is correctly based on your "negligence." Now, the only question is: "What do I actually do when the owner (or their attorney) recoils at the removal of the word "defend" from the contract? - 32196
About the Author:
Timothy Esler, CPCU, is a Principal with Fenner & Esler Insurance Agency, a boutique insurance brokerage and risk management organization representing architects and engineers countrywide. Tim's complete original articles are published in The Zweig Letter.
