Project delivery systems that select designers and contractors on the basis of qualifications and facilitate communication during design and construction should reduce claims against professional liability policies. When shared risks and rewards are added to the procedure for putting capital assets into place, the contractual arrangements could reduce the likelihood of fault based on negligent performance and replace the legal standard of care with negotiated business decisions among the parties.
Currently, 84 percent of all claim payments made by the CNA program on behalf of design firms go to the project owner or client or a party in the construction process. IPD contracts and procedures could make many of these claims disappear. Claims and claim payments could be diminished by greater communication, prohibited by contractual waivers and limitations, or paid for through lost profits, incentives, and perhaps design firm assets. While third-party property damage and bodily injury claims would still be factors in driving the price of insurance coverage, the reduction in project owner/client and contractor claims could reduce overall costs. Project-specific coverage for IPD attempts to calculate this changed exposure by examining the contractual specifics and risk profiles of the parties and project types.
Some Projects Are Difficult to Insure
Even with project-specific coverage, some project types—because of their size, complexity, or the influence of uncontrollable external factors—are difficult to insure for professional liability exposures. Many of these are discussed in claim studies on the AIA Trust website through our partner Victor O. Schinnerer & Company.
Defense is a Large Part of Insurance Costs
In 2009, 38% of all spending by CNA on closed claims was defense costs. Even where an indemnity payment was made on behalf of the policyholder—through arbitration or litigation determining fault or through settlement of a claim—the amount paid to correct a problem or compensate for an injury only constituted 70% of the total. In these cases where responsibility often is quickly determined, defense costs were still significant.
Defense costs are a significant factor in professional liability premiums. That is one reason only insured firms are defended by the policy. If the policy defended clients of insured firms rates would soar.
Managing your risks upfront through sound quality practices will only help you to control these potential costs and allow you to focus on where you want to—your practice.
Victor O. Schinnerer & Company, Inc. and CNA work with the AIA Trust to offer AIA members quality risk management coverage through the AIA Trust Professional Liability Insurance Program and Business Owners Program to address the challenges that architects face today and in the future. Detailed information about both these programs may be found on the AIA Trust website, www.TheAIATrust.com.