Professional liability insurance is really not just about negligence.
Dec 20, 2018
By: Miri Lebhar, VP, Itzick Simon - the leading construction insurance agency
One of the common phenomena regarding professional liability insurance for those engaged in the planning and engineering professions is that, although it is one of the most significant tools for the engineer, architect or engineer, many of the clients who come to me to purchase a policy do so only when they are faced with a contractual requirement. The decision or examination regarding the purchase of a professional liability policy therefore only arises when they are in an advanced stage of the tender. Sometimes even after such and such principled conclusions.
Unfortunately, in most cases, the picture is the same. The engineer, architect or engineer comes with a contractual requirement that seems high or excessive to him, when he already has real concerns about his financial ability (or desire) to fulfill that requirement.
I will clarify that although the terms and requirements are usually open to negotiation with the various work clients and their consultants, and in light of the experience I have gained, I usually know how to create the bridge between the desired and the existing, it is important for me to take advantage of the current stage given to me on the "CivilEng" website to explain why professional liability is a safety net that goes far beyond a contractual requirement.
The light hand on the prosecution's trigger
Let's start from the basics. Professional liability insurance is designed to provide engineers and architects with an emergency response against situations in which, God forbid, they will be exposed to a situation in which a claim is filed against them alleging defects that were revealed in such and such projects, the origin of which will usually be alleged to be a breach of professional duty, originating from an act and/or omission, negligence, error or omission, committed (or alleged to have been committed) by the engineer/architect/engineer in the course of his employment.
It must be understood that the current trend in the construction industry, especially in light of the growing awareness of failures and defects, has led to the fact that the finger on the legal trigger is easy, very easy. As soon as any failure is discovered/cleared up, the likelihood that a lawsuit will be filed against everyone involved in the chain is almost a trivial matter. Whether the failure is performance or design, whether it stems from poor supervision and/or planning, etc., or whether it arises from an act or omission of the contractor performing the work. All of them, including all of them, are jointly and severally sued.
By: Miri Levhar, VP, Itzick Simon - the leading construction insurance agency
One of the common phenomena regarding professional liability insurance for those engaged in the planning and engineering professions is that, although it is one of the most significant tools for the engineer, architect or civil engineer, many of the clients who come to me to purchase a policy do so only when they are faced with a contractual requirement. The decision or examination regarding the purchase of a professional liability policy therefore only arises when they are in an advanced stage of the tender. Sometimes even after some kind of summary of principles has been reached .
Unfortunately, in most cases, the picture is the same. The engineer, architect, or civil engineer comes with a contractual requirement that seems high or excessive to him, when he already has real concerns about the financial ability (or desire) to fulfill that requirement.
I will clarify that although the terms and requirements are usually open to negotiation with the various work clients and their consultants, and in light of the experience I have gained, I usually know how to create the bridge between the desired and the existing, it is important for me to take advantage of the current stage given to me on the "CivilEng" website to explain why professional liability is a safety net that goes far beyond a contractual requirement.
The light hand on the prosecution's trigger
Let's start from the basics. Professional liability insurance is designed to provide engineers and architects with an emergency response against situations in which, God forbid, they will be exposed to a situation in which a claim is filed against them alleging defects that were revealed in such and such projects, the origin of which will usually be alleged to be a breach of professional duty, originating from an act and/or omission, negligence, error or omission, committed (or alleged to have been committed) by the engineer/architect/engineer in the course of his employment.
It must be understood that the current trend in the construction industry, especially in light of the growing awareness of failures and defects, has led to the fact that the finger on the legal trigger is easy, very easy. As soon as any failure is discovered/cleared up, the likelihood that a lawsuit will be filed against everyone involved in the chain is almost a trivial matter. Whether the failure is performance or design, whether it stems from poor supervision and/or planning, etc., or whether it arises from an act or omission of the contractor performing the work. All of them, including all of them, are jointly and severally sued.
Legal costs? Think again.
Even if the architect/engineer/engineering professional is not at all guilty of the error, and is a meticulous and meticulous person who was impeccable in his work, anyone who is included in the group of defendants must automatically seek immediate legal assistance. The financial expenses required to build this legal defense quickly climb to enormous amounts.
Take, for example, a case in which I tried to personally assist a dear friend who has served as a supervisor for many years, who consciously chose not to purchase a professional liability policy. The above-mentioned person was sued for an incident in which a worker was killed, along with the entire chain, and as of today, with the legal outcome still not in sight, his legal expenses are estimated at approximately 120,000 shekels. This is despite the fact that, familiar with the facts, I can estimate (with the necessary reservations, of course) that there is a reasonable chance that the court will not find that there is any reason to hold him liable.
In other words, we have a professional who did everything right, except for not purchasing professional liability insurance, and was forced to pay huge payments of hundreds of thousands of shekels. These amounts, you guessed it, come directly from his bank account. Exactly.
Not only that, even after the legal process is over and it becomes clear that the failure was not due to his work, the Israeli legal system is not inclined to easily award expenses. Much less at the rate that the inspector is required to spend. All this before we even say a single word about the investment, the hassle, the mental anguish and the natural concerns.
Even if the architect/engineer/engineer is not at all guilty of the failure, and is a meticulous and meticulous person who was impeccable in his work, everyone who is included in the group of defendants should automatically seek immediate legal assistance. The financial expenses that will be required to build this legal defense quickly climb to enormous amounts.
Take, for example, a case in which I tried to personally assist a dear acquaintance who has served as a supervisor for many years, who consciously chose not to purchase a professional liability policy. The above-mentioned person was sued for an incident in which a worker was killed, along with the entire chain, and as of today, with the legal outcome still not in sight, his legal expenses are estimated at approximately 120,000 shekels. This, despite the fact that, being familiar with the facts, I can estimate (with the necessary reservations, of course) that there is a reasonable chance that the court will not find that there is any reason to hold him liable. In other words, we are facing a professional who did everything right, except for failing to purchase professional liability insurance, and was forced to pay huge payments of hundreds of thousands of shekels. These amounts, you guessed it, come directly from his bank account.
Exactly. Not only that, even after the legal process is over and it turns out that the failure was not due to his work, the Israeli legal system does not tend to easily award expenses.
Let alone at the rate that the inspector was required to spend. All this before we even said a single word about the investment, the hassle, the mental anguish, and the natural concerns.
Alongside the financial issue, there are business aspects that are much more important than money. Professional liability insurance is designed not only to protect the insured financially, but is a kind of iron dome against damage to the reputation and name that the insured has worked hard to build over many years of work and worked even harder to maintain.
When an architect/engineer/technical engineer finds himself facing a lawsuit, and of course if he is already on the defendant's bench, the insurance company's job is to do everything possible to avoid paying . Yes, you read that right. The best-case scenario for the insured is that the insurance company will win the process and dismiss the lawsuit . Whether it is a purely vexatious lawsuit, which has no basis in reality and was filed "in a successful manner," or whether well-founded and complex defense claims must be presented.
By doing so, by properly selecting the legal team according to the circumstances of the case, the insurance company protects the business reputation of the architect/engineer/engineer. It ensures that no stain of omission or negligence will be attached to it, which in the construction industry is like the mark of Cain. In addition, it significantly reduces its own financial exposure. In other words, this is a "strange" Win-Win scenario for both parties, at least in relation to the complex relationship between the insured and the insurer.
The insurance company has the tools to fend off these claims at each stage. Both thanks to its extensive experience, thanks to its exposure to a pool of first-class lawyers, and in light of its ability to weave the right connections between lawyers and specific cases. Furthermore, the knowledge and experience of the insurance agency have enormous weight when it comes to examining, together with the insurer and the insured, the right law firm to handle the procedure.
Reputation – more important than money
Long-term warranty
A final issue I will address here is the long term. A characteristic of crucial significance regarding the professional liability of engineers, architects, and civil engineers. These, by their very nature, frequently jump between projects and are therefore exposed to claims even after significant periods of time have passed, even many years after their work was performed and approved.
The statute of limitations in the construction industry begins to run from the date the defect is discovered, and not necessarily from the date of execution and/or the date of planning. We are also aware of unusual situations in which claims for defects and planning failures were filed years after the planner's business closed. Including cases in which the planner had already passed away, so the claim was filed against his estate, or in other words, against his family members.
When drafting a professional liability policy, it is important to emphasize insurance continuity, retroactive application, and an option for run-off coverage for a significant period, which will apply even after cessation of activity, and of course to determine a maximum liability limit that is made while precisely balancing the requirements of the client, the nature of the planner's activity, the scope of his business - and his financial capabilities.
Note: It is recommended to carefully examine the wording of the policy for its extensions and limitations. It should be remembered that the coverage package must be tailored to each office in accordance with the nature of its activities, and usually also consists of additional supplementary insurance (all as stated according to the individual needs of the insured).
A final issue I will address here is the long term. A characteristic of fateful significance regarding the professional liability of engineers, architects and civil engineers. These, by their very nature, frequently skip between projects and are therefore exposed to claims even after significant periods of time have passed, and even many years after their work was performed and approved. The statute of limitations in the construction field begins to run from the date the defect was discovered, and not necessarily from the date of execution and/or the date of planning. We are also aware of exceptional situations in which claims for defects and planning failures were filed years after the planner's business closed. Including cases in which the planner had already passed away, so that the claim was filed against his estate, and in other words, against his family members. When drafting a professional liability policy, it is important to emphasize insurance continuity, retroactive application, and an option for run-off coverage for a significant period, which will apply even after cessation of activity, and of course to determine a maximum liability limit that is made while precisely balancing the requirements of the client, the nature of the planner's activity, the scope of his business - and his financial capabilities.
Note: It is recommended to carefully examine the wording of the policy for its extensions and limitations. It should be remembered that the coverage package must be tailored to each office in accordance with the nature of its activities, and usually also consists of additional supplementary insurance (all as stated according to the individual needs of the insured).
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