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O P I N I O N
W ith the economy rebounding in several parts of the country, many design firms are seeing projects start up or restart. Yet, the good news comes with a new challenge: An increasing number of insurance specifications now require professional liability insurance limits that are significantly above what design firms typically carry. Having a clear understanding of some key insurance concepts can help your firm navigate heightened requirements and hard insurance market conditions more effectively. Heightened insurance requirements
Rob Hughes
Unfortunately, these requirements coincide with a hardening insurance market. Underwriters are now holding the line or reducing the professional liability insurance limits they’re willing to offer. In your contract negotiations with clients, having a clear understanding of some key insurance concepts can help your firm navigate these requirements and the current hard insurance market conditions more effectively. REALITY CHECK: PUTTING HEIGHTENED REQUIREMENTS INTO CONTEXT. In light of high project costs, owners and their advisors (especially, legal and insurance) inherently sense the need to update contractually required insurance limits to address increased exposures. By their assessment, the risk is defined by potential damages they may sustain or that the general contractor or others may claim against
them (allegedly, at least partly due to design errors or omissions). Nonetheless, there still should be some logical correlation between the size of the project and the professional limit required. Consider, for example, a recent $10 million university project where the professional liability insurance limit (required from the architect) was also $10 million. Realistically, the likelihood of a claim or series of claims totaling 100 percent of the entire project cost is remote. In its negotiation, the architect should use this fact to explain that the additional costs of obtaining the required limit isn’t justified. Although professional liability insurance limits often vary depending on project type, location,
See ROB HUGHES, page 10
THE ZWEIG LETTER SEPTEMBER 13, 2021, ISSUE 1408
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