Every architecture project involves risks. No matter how careful an individual architect or design team is, problems can arise. Consequently, every architect or architecture firm should carry professional liability insurance.
This article explains what this coverage is and why it is essential.
Understanding Professional Liability Insurance
Professional liability insurance protects the policyholder from the financial ramifications of actual or alleged mistakes in the professional advice or services they provide. If a client says the architect they hired made an error that caused them financial harm, this policy (sometimes called errors and omissions or E&O insurance) can kick in. It can cover costs like damages, settlements, and the policyholder’s legal defense expenses up to its limit.
Costs related to a lawsuit can easily be in the tens of thousands of dollars (and potentially much more), so choosing not to have coverage is risky. Legal requirements for carrying insurance may also exist, which is another reason to have a professional liability policy.
The good news is that this coverage tends to be affordable, often starting at around $300 annually for an individual architect. Some providers enable you to get instant quotes and purchase policies online, with coverage typically in force as quickly as the next day.
What Does Professional Liability Insurance Cover?
Professional liability insurance provides coverage for three main types of claims:
- Unfulfilled duties. In this scenario, a client expects you to take a particular action that is standard for your industry, and you fail to do so. For example, an architect might be required in a particular jurisdiction to account for soil conditions in their building design. If a firm doesn’t do that and the building’s foundation cracks, that might be considered an unfulfilled duty.
- Negligence. This is when an architect doesn’t act with reasonable care. For instance, if they fail to adhere to local building codes and, as a result, the client incurs fines or other costs, a negligence claim may exist.
- Mistakes. This might be making a calculation error that subsequently adversely impacts some aspect of the structure and harms the client financially.
These are just a few examples of professional liability for architects, of course. Ultimately, if the service you provide to a client harms them financially in any way, you might face a lawsuit, and your professional liability policy may cover the related costs.
Professional Liability Insurance Policy Exclusions
It is essential to be aware that professional liability insurance policies—like virtually all insurance policies—have exclusions. These are events or situations that the policy won’t cover.
For instance, a policy won’t protect your architecture business if you commit criminal acts, like fraud. It is also common for professional liability insurance to exclude contractual liability, such as agreeing in a contract with your client that a building will meet specific energy performance standards and then missing those targets.
The bottom line is that it is crucial to read a professional liability policy carefully from start to finish before you buy it to understand what it does and does not cover.
Other Vital Business Insurance Coverage
Professional liability insurance can pay claims related to your professional advice or services. However, it doesn’t cover other risks your architecture business might face.
Those “exposures” include employee or visitor injuries, property damage, liability from the operation of company vehicles, and others. You will need separate policies (workers’ compensation insurance, general liability insurance, property insurance, commercial auto insurance, etc.) to address those incidents.
Insurance company websites and representatives can help you understand what types of coverage are essential for you based on how your company operates.
Protect Your Architecture Business With Professional Liability Insurance
As noted above, professional liability insurance is affordable and easy to obtain. So, there’s no reason to be without coverage and risk a financial catastrophe for your business. Getting covered provides powerful peace of mind and helps you stay focused on producing exceptional work for your clients.
