From conception to design, architectural firms work hard to bring the visions of their clients to life. While the work can be rewarding, mistakes can happen. If a mistake ends up causing a client financial loss, they could sue your firm for the damages. This is where architect professional indemnity insurance comes in.
Architects professional indemnity helps to protect your architectural design practice from claims arising from the professional services offered. The coverage is also known as Errors and Omissions (E&O) insurance, or architects’ professional liability insurance. It is designed to cover a wide range of claims, including those made in errors and omissions, professional misconduct, and breach of contract.
Why is it important for architects?
Professional Indemnity insurance is important for all architects as it helps to protect them from financial ruin in case they are sued by clients for professional negligence. In most cases, the cost of defending such a lawsuit can be super high, and even if the architect is not found negligent, they may still have to pay exorbitant legal fees. Professional liability insurance helps architects to cover these costs, which may be a lifesaver for firms facing a lawsuit.
It’s worth noting that professional indemnity is not required by law. However, certain architectural bodies and associations will require you to have it to be eligible for membership. It might also be a contractual responsibility when applying to tenders for some work.
Moreover, architects should consider PI coverage as part of their risk management plan. This is because, without it, they would have to pay out of pocket for lawsuits and claims related to their professional services.
What does professional indemnity insurance for architectural services cover?
Professional indemnity insurance provides coverage for compensation and legal costs from third-party claims, including your clients and end users. The claims may come from the provision of negligent services or advice, resulting in financial loss.
Professional liability insurance typically covers claims of:
Civil liability: In case a client suffers financial losses due to any information, advice, or designs you provided, a professional indemnity policy can help cover the legal costs, settlements, and awards.
Breach of contract: This typically happens when an architect does not fulfil their obligations as outlined by the contract signed with the client. For instance, an architect would be in breach of their contract if they fail to complete a project within budget or on time.
Defamation: You might accidentally hurt someone’s reputation while conducting business, which may result in legal action and compensation being awarded. Professional indemnity insurance should cover all costs up to the limit of the cover.
Professional misconduct: This may happen when an architect conducts themselves in a way that is widely considered unprofessional, like engaging in misrepresentation or fraud.
Errors and omissions: This happens when an architect makes a mistake while at work, such as overlooking crucial details in the design of a project.
If a client sues your architecture firm because of the professional services offered, professional indemnity insurance can help cover the legal costs, defence costs, and any other costs associated with settlements and judgements.
How does professional indemnity insurance work?
You have to notify your employer as soon as possible following a circumstance that may result in a claim. You will then receive guidance from your insurer on how to proceed. In case you try remediating the claim or problem without this advice, you risk prejudicing the insurer’s position when it comes to a claim settlement.
For small claims, your insurer will work with you to defend the claim. The underwriter and the claims consultant will rely on you for architecture-specific details and will draft responses and offer legal expertise.
If there’s potential for an enormous claim, or it appears to be litigious, the insurance company may assign a claims manager or solicitor to handle your client. They will manage the defence and negotiate a settlement to minimise the claim.
Keep in mind that professional indemnity insurance is a claims-made process. As such, the policy currently in place will be used to handle the claims. It’s not any other policies that may have been in place when the service or advice was being provided.
How much does professional indemnity insurance cost?
How much you will pay for professional indemnity insurance will vary depending on the size of your business, the type of work you do, and the amount of coverage you need. Most insurance companies will use a few more factors to determine the cost of your insurance, including your claims history, years in business, location, and number of employees. However, generally speaking, this type of insurance is affordable for most architects.
Under normal market conditions, the rates range from .5% to 3% of the fee income based on the normal risk factors and the competition in the market. Rates can go higher or lower depending on the kind of work being undertaken and the claims history. Rates are often discounted for new architecture firms because they don’t have a history or legacy to insure.
The recommended amount of cover (limit of indemnity) will vary based on the professional body you’re a member of and the kinds of contracts you’re working on. You can find the minimum amounts needed by speaking to them.
Final Thoughts
No matter how much experience you have, there’s always a chance that you may provide information or advice in error, leading to legal action. This is why professional indemnity insurance is important for any architectural firm. It can effectively help mitigate the risk of financial ruin in case a disgruntled client sues your firm, and give you peace of mind while doing business.
