1148

urance

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many new firms have recently entered the market. How- ever, he did say that Berkshire Hathaway, Arch, and AXIS, among others, are recent arrivals. “These are all significant insurance companies that are see- ing A/E professional liability as an add-on line of business,” Knise says. “It’s considered a good place to make money.” “The good news for architectural and engineering firms is that the marketplace for professional liability insurance has seen competition both from existing insurers seeking to expand their business and insurance companies new to this coverage line that want to establish a foothold or gain market share.” Professional liability covers economic loss claims and bodily injury claims that arise from providing professional servic- es, and most claims are from the project owner. A big source of claims, Knise says, come out of multifamily projects, par- ticularly condos, highways and roads, and institutional fa- cilities like schools. Based on the results of the survey, 57 percent of firms in 2015 reported a claim payment of $1 million or higher, with one firm reporting a claim payment of between $5 and $9.9 million, and another reporting a claim payment of between $10 and $19 million. The complexity of claims, contract compliance, and the increase in legal fees, is pressuring firm clients to ask for higher coverage limits. The pitfalls of development, design, engineering, and con- struction are beyond count, and claims against firms can come from just about anywhere and for any reason. And there is no shortage of examples of how projects can spiral into lawsuits, with A/E/P firms and their insurance provid- ers at the center of the complaints. On a small scale, but notable nonetheless, is a 2015 case out of New Orleans. Rob Ryan, the former New Orleans Saints defensive coordinator – now with the Buffalo Bills – sued a developer, builder, and two engineering firms, claiming his $2 million Uptown home was sinking due to flawed con- struction. As of March 24, the case was still open, according to the case file at Orleans Parish District Court. On a much larger, and even epic scale, is the case unfold- ing in Seattle. There, the Washington State Department of Transportation is at odds with Seattle Tunnel Partners, the company digging the Alaskan Way Viaduct Replacement Project, a two-mile tunnel underneath downtown Seattle. The world’s largest boring drill, named Bertha, was dam- aged early on during the process, in 2013, bringing the

TOP FIVE UNDERWRITING CONSIDERATIONS (2016 vs. five prior years)

100%

Type of project

80%

Recent claims experience

Historic loss experience

60%

Type of work/service

40%

20%

Quality of rm’s leadership/governance

2011

2012

2013

2014

2015

2016

Note: Insurers provided multiple answers, so the responses for each year sum to over 100%.

project to a halt. Though the drill has since been repaired, the question of who was responsible for the breakdown is still unresolved. The state of Washington says Seattle Tun- nel Partners had a defective drill, while STP claims that the drill was damaged by piping leftover from the state’s groundwater studies. The cost to repair Bertha? According to a lawsuit pending in the Supreme Court of the State of New York, County of New York, about $143 million. But STP’s insurer, a consortium led by Great Lakes Reinsurance (UK) SE, says it is not re- sponsible for the repair bill because the drill was defective, and thus not covered under the policy. In 2016, the insurance companies surveyed cited type of projects (86 percent), recent claims experience (79 percent), historic claims experience (64 percent), and type of work/service (57 percent). Neither the Ryan case nor the Washington case were reflect- ed in the Ames & Gough survey, and Knise did not speak to either of them. The insurers that participated in the Ames & Gough sur- vey were: ACE (now Chubb), AIG, Arch, Aspen, AXIS, Beaz- ley USA, Berkley Design Professional, CNA, Liberty, Markel, Navigators, One Beacon, RLI, and Travelers. Emerging “In the past, competition has been keen among insurers vying for the business of smaller design firms, which many underwriters see as more desirable risks. Yet lately, competition has spread to all segments of the market.”

See INSURANCE, page 8

R April 18, 2016, ISSUE 1148

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