AIA Trust: Important News

Professional Liability Claims: Practice and Insure to Manage Risk

After every period of economic growth, claims against architecture firms increase. In the past few years, studies have shown that claims against architecture firms are rising at a much faster rate than the growth in billings. Insurance premiums have not matched the cost of insuring risk. As architects have rapidly expanded their services, there has been less emphasis on risk management. When the economy slows, claims from past mistakes appear. Moreover, claims from clients seeking to recover costs from untenable projects fuel the claims growth.

During a hard market, it is important to be insured by a professional liability program with a history of stability, service, and strength in the marketplace. The CNA/Schinnerer program, commended by the AIA and sponsored by the AIA Trust, has a long history of responding to the needs of the architecture profession.

The CNA/Schinnerer program is best positioned to protect your firm and preserve your profitability against any challenges this hard economic market presents. By working with an independent insurance broker-a professional who represents your interests-you can learn about coverage options, deductible plans, payment methods, and educational programs that can keep your firm profitable and insure you against professional liability risks.

Protect Your Interests Through Commitment Plus^®

Architects who practiced in the mid-1980s know that both claims growth and external factors caused insurance rates to rise precipitously. The CNA/Schinnerer program prudently raised rates two decades ago in reasonable anticipation of future claims. Starting in 1980, a safety valve, Commitment Plus^®, was built into the program.

Commitment Plus^®, CNA/Schinnerer's universal profit-sharing program coverage, was designed with the help of the AIA as a way to stabilize insurance costs and prevent windfall profits. Judging future risk-and collecting a premium to pay for it-is an imperfect science. Therefore, Commitment Plus^® caps underwriting profit at 3%.

This innovative program requires that premiums collected above the amount needed to pay claims and costs and to provide a capped underwriting profit be redistributed with interest at a future time when all costs are known. This program has added stability to the insurance market by returning more than $405 million in premiums and interest since 1990. Now, as claims increase in frequency and severity and the ability of insurers to invest premium dollars profitably diminishes, insurance premiums must increase to provide enough resources to pay future claims. And once again Commitment Plus^® is there to provide long-term protection.

Learn to Manage Risk at CNA/Schinnerer Seminars

For the past thirty years, CNA/Schinnerer has held regional seminars, co-sponsored by the AIA, titled Understanding and Managing Risk. The development, annual redevelopment, and conduct of the seminar are part of the service the CNA/Schinnerer program provides as the AIA's Commended Program of professional liability insurance. These seminars are not insurance marketing programs-they address the risks that architects face and discuss ways to improve practice management.

Schinnerer's seminar provides the tools architects need to manage the demands and expectations of clients and other participants in the project delivery process. The seminar is divided into two freestanding, half-day sessions (3.5 hours each). Planning and design phase issues-including risk management concepts, the legal context of project delivery, the creation of a project work plan, and communication strategies and techniques-are addressed in the morning. The afternoon session focuses on construction phase issues such as review and approval of submittals, issuance of certificates, dispute management, and inspections.

AIA members can register for one or both sessions. Each session is accredited for 3.5 HSW learning unit hours. The fee for each session is $125. For more information, visit the Schinnerer Web site at www.PlanetAEC.com.

Upcoming Regional Seminars

Hartford-Thursday, October 17, 2002
Northern Virginia-Thursday, November 14, 2002
Seattle-Thursday, December 5, 2002
Dallas-Thursday, January 23, 2003
Memphis-Thursday, February 20, 2003
Columbus-Thursday, March 20, 2003
Las Vegas-Tuesday, April 29, 2003

Improve Your Bottom Line with Schinnerer's VEP

Through its publications, seminars, and Web site, the CNA/Schinnerer program is one of the world's largest sources of education and management assistance for architecture firms. The goal is to help policyholders protect and enhance their profitability. One valuable source of risk management education is Schinnerer's Understanding and Managing Risk: A Guide and Voluntary Education Program for Design Professionals (VEP). It was developed with the assistance of the AIA's Risk Management Committee.

The VEP provides a total of 42 continuing education hours meeting HSW criteria. The VEP-whether used as a home-study course for individuals or as part of a firmwide educational program-provides an understanding of risk management and is an efficient way to meet state and AIA/CES requirements. This self-paced CNA/Schinnerer continuing education program not only provides information to help a firm protect its bottom line, but also provides access to premium credits that allow a firm to lower its insurance costs. Passing the VEP, using AIA documents, and attending an AIA-CNA/Schinnerer regional risk management seminar are all activities that can lead to a 7% premium credit for firms insured by the Commended Program.

In September, the VEP is moving online in an expanded form. Stay tuned to www.PlanetAEC.com for details.

The AIA-Commended Professional Liability Insurance Program

Since 1957, the AIA has commended the CNA professional liability program administered by Victor O. Schinnerer & Company, Inc. The CNA/Schinnerer program was developed at the request of the AIA and is continually reviewed by the AIA Trust. It was developed to be more than just an insurance policy. The Commended Program was organized to be a stable source of insurance and risk management services.

The AIA commends, and the AIA Trust sponsors, the CNA/Schinnerer program because it is national in scope and meets these commendation criteria established by the AIA Board of Directors:

That the insurance company is able to provide coverage and local claim service anywhere in the country.
That the reinsurers of the insurance company be of satisfactory financial strength.
That the insurance company possess the highest possible rating in the A.M. Best financial ratings.
That the insurance company make no changes in the terms or rate of the policy without prior consultation with the AIA.
That the AIA has the right to examine the books of the insurance company and the administrator as these books pertain to this program.
That the insurance company be available to all AIA members with satisfactory experience or performance records.

According to Jim Anstis, FAIA, former AIA Risk Management Committee and AIA Board member, and current AIA Trust officer, "Commendation allows the AIA Trust to set the standard of what a good insurance program is for architects." Continues Anstis, "Further, it affords the Institute the platform to advocate for new and expanded coverages and services as member needs evolve. The power and leverage of the AIA Trust over the Commended Program is unique in the world of professional liability insurance. And, because the Institute's Commended Program is the benchmark for the industry, the influence of the Institute and the AIA Trust impacts the entire insurance marketplace."

Covering Business and Professional Risks Through DesignOne

For years, architects have requested a comprehensive package of insurance products. Sensitive to the realities of professional practice, knowledgeable firms want to cover their design liability and practice exposures through one broker and one insurance company.

This type of coverage became a reality with DesignOne-the AIA Trust-sponsored CNA/Schinnerer program that offers professionals the ability to combine property, general liability, workers compensation, business auto, umbrella, employment practices, and professional liability insurance coverages into one program. Those professionals who called for seamless insurance coverage immediately recognized the risk management advantages of DesignOne.

The following commercial coverage options are all available through DesignOne.

Commercial or business auto coverage provides protection for any business-owned or leased commercial vehicles.

General liability coverage protects against claims alleging bodily injury or property damage due to negligence or accidents. General liability is the most basic type of commercial insurance and is provided for incidents occurring on premises or at a client's location.

Property coverage provides protection for a firm's physical assets-including computer equipment and valuable papers and media. Through DesignOne, other property protection is available that specifically addresses business income and continuity of operations coverage.

Umbrella coverage provides excess coverage in the event that a liability claim is large enough to exhaust the underlying liability limits. With DesignOne, umbrella coverage offers protection over the commercial liability insurance that already exists. It also provides automatic replacement coverage for underlying policies reduced or exhausted by loss.

Workers Compensation coverage provides protection for employees who are injured on the job. With DesignOne coverage, mandatory legal requirements are met. Injured workers are protected for required medical treatment and lost work time.

With claims against professional service firms increasing, the need for coverage that insures all aspects of your practice is critical. Professional service firms have unique exposures, and each project carries its own combination of unknowns, assumptions, and risks. Fitting pieces of insurance protection together can leave serious gaps in coverage-leaving the firm at serious risk. Managing those risks becomes easier if the firm is protected with one insurance program - DesignOne.

Other Available Coverages

Other available CNA/Schinnerer coverages not included in DesignOne are:

Directors and Officers (D&O) coverage protects firm management against suits related to their management status and conduct in leadership roles.

Employment Practices Liability (EPL) coverage protects firms and individual managers against loss-damages and defense costs-resulting from employment practice disputes. Discrimination, sexual harassment, wrongful termination, and wrongful discipline are among the most common EPL claims alleged against architects.

Fiduciary liability coverage-also called pension or trust liability-is designed to protect fiduciaries defined by the Employment Retirement Income Security Act (ERISA) from loss that may occur in administrating or managing employee benefit and pension plans. Plan mismanagement, faulty advice, and negligent errors or omissions are the largest ERISA claims violations.

Keeping Retirement Programs Current

Selecting the appropriate retirement plan for one's business is one of an employer's most important decisions. Laws governing retirement plans often change, so deciding whether these changes will benefit the plan is a continuous process. The passage of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) has brought about a number of changes that may have a dramatic impact on various retirement plans. A retirement plan may be substantially improved by including these important new benefits, making it more worthwhile for employee participants.

EGTRRA increased contribution limits: For 2002, the annual contribution limit for defined contribution plans is increasing from $35,000 to $40,000. For plans that use an integrated contribution formula, the Social Security Wage Base is increasing from $80,400 to $84,900. A plan may need to be redesigned in order to take advantage of these changes.

Retirement plans can be fine-tuned to add important benefits for firm partners and employees. The retirement plan specialists with the AIA Members Retirement Program will re-evaluate the parameters of an existing retirement plan according to those approved by the IRS. The IRS-approved master plan can be customized to suit individual firm needs.

More information on potential plan benefits, as well as a free copy of the Plan Redesign Proposal, is available through an AIA Members Retirement Program specialist at The Equitable, by calling 1-800-523-1125 x 6127.

In Case of an Accident

Here are some important tips to remember in case of an automobile accident.

First, telephone the local insurance claims office immediately if the accident involves any of the following: (a) another car with people in it, even if no one was hurt; (b) a pedestrian; or (c) any personal injury or extensive property damage.

Stop immediately, in a safe place if possible.

Turn off the engine. In case of fire, move a safe distance from the vehicle.
Take measures to prevent another accident. Make warning devices visible.
Be courteous. Don't argue or place blame.
Exchange name, address, and license number with the other driver. Do not sign any statement or release.

In case of injury, and without first aid training, do the following:

Phone the Emergency Medical Services (EMS) system for help. In many communities, the number is 911.
Control bleeding with direct pressure over a clean covering-not a tourniquet.
Keep the victim warm and covered until help arrives.

Other important information to obtain:

Name, address, and license number of other drivers.
Registration numbers of other vehicles.
Name and address of the vehicle owner if different from the driver's.
Damage to other vehicles.
A diagram of the accident.
Any remarks made by occupants of other vehicles, especially concerning admission of fault, defective condition of vehicles, or extent of bodily injury or property damage.
Names and addresses of witnesses, whether favorable or not, including those in the vehicle involved in the accident.

Following these tips will help you achieve the best resolution of the situation in a timely manner. A free, no obligation quote for auto insurance may be obtained by calling 800-524-9400.

Managing Techno-Stress

The very gadgets designed to make life easier can actually cause an added dimension of stress. It's frustrating when the faxes, e-mails, and voicemails pile up; annoying when phones don't stop ringing; and infuriating when equipment breaks down.

When your cell phone rings, do you tense up wondering who wants what from you now or why you are receiving this call at dinner?
Do you receive a staggering number of e-mails, voice messages, and faxes every day? And while you're on the phone returning calls, they continue to pile up.

Cell phones are indispensable in case of a highway emergency, to catch up on calls when waiting in traffic or at the airport, and to keep in close touch with family, friends, and business associates. They ring in the office, at school, restaurants, movies, and even at church! People walk down the street talking on the phone. As great as they are, cell phones (especially other people's) can be very annoying.

Tips on Managing Cell Phone Use

Turn off phones at concerts, theaters, movies, restaurants, and church, and while attending weddings and funerals. Turn it off whenever you need peace and quiet for a while.
If the phone must be on, set it to vibrate and inform your companions that you have an important call coming in.
When the call comes in, answer it with your most quiet "inside voice" and go to a private area (vestibule, parking lot) to complete your call.
If other people talk loudly on their phone in a restaurant, ask the waiter or manager to invite the person to take their call in a private area.

E-mail is a great way to stay in touch with friends and family members who live in different time zones or even just around the corner. In the business world, e-mail has eliminated tons of paper.

Tips on Keeping Your E-mail under Control

Limit e-mail time. Retrieve and read e-mail only twice a day. Respond, forward, and delete immediately. Print lengthy items to be read later. Save only those e-mails that are critical.
Automate tasks. Create an automated signature, automated responses, and lists for forwarding.
Preview e-mail messages. Just a glance at the subject line may tell you whether you can delete it. Delete messages from anyone you don't know to prevent receiving an e-mail virus.
Keep your e-mail address confidential to avoid "spamming."

There are ways to decrease stress levels at home as well. It's important to avoid being constantly "on-call" by the office or by others making demands on your time.

Tips on Managing Stress at Home

Turn off all the phones at family mealtimes and children's bath and story time.
Keep your phone number unlisted to reduce unsolicited calls, or use Caller ID.
Develop a hobby, such as gardening, reading, or caring for a pet.
Turn off the television.
Try stress busters such as relaxation tapes, yoga, meditation, and exercise.

By taking charge of technology, you won't become a slave to equipment or information or be on call 24 hours a day. Minimize stress by curtailing intrusions for at least one hour a day and do something you enjoy instead.

Housing Claims Threaten Profession

The risks faced by architects involved in multifamily housing projects greatly outweigh the fees. Claims from multifamily housing, while always a problem area in professional liability, now threaten to drive insurance rates skyward and more architects out of business.

In its role as the AIA's Commended Program of professional liability insurance, CNA/Schinnerer recently analyzed claims statistics and trends with the AIA Trust officers. The disparity between the amount of billings generated by multifamily housing design projects and the outlay in claims defense costs and indemnity payments shocked even those AIA Trust architects familiar with residential design.

Multifamily Housing Claims Soar
For the many thousands of architecture firms in the AIA's Commended Program, reported billings from multifamily housing projects represent less than 4.5 percent of the total income from all design projects. However, claims from these projects represent almost 20 percent of all claims against architecture firms. The ratio of the percentage of claims to the percentage of billings-four to one-is astounding.

According to CNA/Schinnerer statistics, all forms of housing represent tremendous risks to architects. Every claim brought against a firm represents a loss for that firm. In addition to damaging the reputation of a firm, a claim means lost productivity, out-of-pocket expenses, and insurance defense and payment costs. Although housing and hotels represent just over 16 percent of the income reported by architecture firms, these projects generate nearly 42 percent of all claims.

Mold Claims Increase Risk
In recent years, the percentage of claims generated by housing-related design services has increased significantly. New allegations related to mold, such as damage o property and personal injury, are driving claims and payments. Nearly every claim involving damage from water intrusion or humidity now includes an allegation of mold damage caused by design negligence. Some architects have attempted to reduce the likelihood of mold claims through design efforts, greater project site services, and carefully specified materials; others have relied on contractual protections, such as limitations of liability, to avoid paying damages. CNA/Schinnerer statistics show that contract language does little to insulate architects from the growing exposures generated by housing projects.

Architects-and Insurers-React to Claims
The market reaction to the high number of claims generated by housing design services is mixed. Some firms are changing their services to avoid such projects. Others have responded to rising insurance costs by going without coverage and jeopardizing their personal assets as well as the viability of their firms. And some are looking closely at their professional liability coverage to ensure that housing-related claims are not excluded.

Some insurers no longer cover architects who design multifamily housing, and some automatically exclude from coverage any claim that even mentions mold as a cause of damage or injury. The CNA/Schinnerer program still covers architects designing housing projects, including condos, apartments, and other types of multifamily housing, and still has no mold exclusions (either for bodily injury claims or for property damage related to mold). But claims drive costs, and as housing projects generate increased claims, architects must recognize and manage their risk exposure to protect their practice.

Top 10 List of Long-Term Care Policy Considerations

Long-term care insurance is a relatively new type of coverage that transfers the risk of needing expensive, long-term care services to an insurance company. Although there are many things to consider when purchasing a long-term care policy, the following are the ten most important features:

A large, well-rated, experienced insurance company. The insurer you select should be rated "excellent" by A.M. Best and "strong" by at least two other independent agencies, such as Standard & Poor's or Moody's.
A policy that has reasonable "benefit triggers." Benefit triggers are the requirements that you must meet before the insurer will pay you benefits. Generally, there are two: the inability to perform basic activities of daily living and cognitive impairment (i.e., memory loss). Avoid plans that require two triggers or that omit bathing. Also, look for a plan that covers both "hands-on" and "stand-by" assistance.
A policy that offers coverage for all types of care. Today's plans should cover nursing home care, home health care, assisted-living care, alternate care, adult day care, respite care, and hospice care.
A plan that pays sufficient benefits for an adequate period. Consider the cost of care, and purchase insurance to cover at least 90 percent of that cost. Since the average length of stay is two-and-one-half years, a policy with at least a three-year benefit period is recommended. The policy should pay 100 percent of actual expenses up to the daily maximum selected.
A policy that allows you to choose the doctor or nurse who certifies your eligibility for benefits.
A policy that offers built-in inflation protection. This allows your benefits to increase over time while your premiums remain level. Most plans offer either 5 percent of your original amount (called "simple") or 5 percent of the previous year's amount (called "compound").
A policy that waives or stops your premiums in the event you require care. Many policies will allow you to stop paying premiums once you actually start receiving benefits. Insist on one that waives premiums for all types of care, not merely facility care.
A policy that offers discounts for being married and for being in above average health. Many insurers offer married couples a discount, usually 10-20 percent for each spouse. If you are in above average health for your age, you could be eligible for a "preferred health discount," which can range anywhere from 10-15 percent.
A monthly maximum policy that covers the cost of homemaker services and home medical equipment and allows for home modifications. The "monthly maximum" benefits are important because the cost of home care can fluctuate dramatically and this provides more flexibility with your insurance dollars.
A policy that specifically covers Alzheimer's disease, Parkinson's disease, and senility (if diagnosed after you secure the policy); does not require a prior hospital stay; is fully underwritten at the time of application; and is guaranteed renewable.

The Trust's long-term care shopping service provides three quotations from top-rated carriers. Click here for details.

Evolution of the 401(k) Plan

A 401(k) plan is a cash-deferred arrangement in which covered employees can elect to have a portion of their compensation, otherwise payable in cash, contributed to a qualified retirement plan as a pretax reduction in salary. Named for the section of the Internal Revenue Code (IRC) in which they appear, 401(k) plans apply to private-sector employers. The Revenue Act of 1978 added permanent provisions, sanctioning the use of salary reductions as a source of plan contributions.

The 401(k) went through many reforms in the 1980s and 1990s. Many AIA members may be familiar with the "traditional" 401(k) and the difficulties small firms experienced trying to satisfy the nondiscrimination tests. However, starting with the Small Business Job Protection Act of 1996, far more user-friendly versions of 401(k) plans were introduced. These included a design-based "safe harbor" method for satisfying the nondiscrimination tests and SIMPLE Plans (savings incentive match plans for employees) for employers with 100 or fewer employees.

More recently, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) included many positive changes that make 401(k) plans even more attractive. These changes benefit both small and large firms; for example, a sole proprietor with no eligible employees can even adopt a 401(k) plan.

Every firm should take a hard look at which type of plan will work best for them. And even though 401(k) plans have come a long way, one thing has not changed: the best time to adopt a 401(k) plan is early in the year.

To find out more about various 401(k) plans, call an AIA Retirement Program specialist at 800-523-1125, ext. 6654.

Customized Coverage for More Value

The unique attributes of the CNA/Schinnerer professional liability insurance program help customize coverage to your firm's needs and level of comfort with risks.

Selecting Coverage Limits
Higher coverage limits, especially a higher aggregate limit, are a realistic way to increase the value of the money invested in coverage. Clients are increasingly concerned with the professional liability limits carried by design firms. Although lower limits of coverage may result in minor savings, higher limits prevent the kind of catastrophic losses that professional liability insurance protects against. Some firms explore the "split-limits" option, setting a limit for each claim and an annual aggregate limit, which may be twice the "per-claim" limit.

Determining a Realistic Deductible
Every deductible obligation has two components. The first is the claim to which it applies, and the second is the level of financial risk retained by the policyholder. Most CNA/Schinnerer firms are eligible for a deductible that is only applied (collected by CNA) when the firm is found to have been negligent or agrees to settle a claim. Increasingly, firms are exploring a deductible obligation that applies any time a demand for money or services is brought against the firm. Although this option can lower insurance costs, it also means that the firm's assets are on the line for each claim.

Planning the Premium Payment
The cost of professional liability insurance does not have to be a one-time shock to the firm's cash flow. Options exist to help firms manage cash in a tight economy. Many larger firms can take advantage of the CNA/Schinnerer 40-30-30 payment plan, in which only 40 percent of the premium is due at inception or renewal, and the balance is paid in equal installments three and six months into the policy year.

Reducing the Impact of Claims
Success in preventing disputes and mitigating unavoidable disputes requires appropriate education and action. CNA strongly encourages early involvement by experienced claims specialists and counsel. Firms receive this assistance at no charge. In addition, CNA pays all of the defense costs incurred in preclaims situations. Preclaims reporting can also help by locking in the limit of liability and deductible in-force should the circumstance later develop into a claim or lead to litigation.

Getting the Most Out of Your Broker
Unlike some other professional liability insurance companies, the CNA/Schinner-er program does not have company agents; your broker is entirely independent. Contact your broker to customize your coverage to meet your current needs and financial constraints.

Security for Laptop Computers

The theft of a laptop computer-particularly for architects, who may depend on it for both the business and design aspects of their practice-is a grave and costly problem. Laptops are easy to steal and easy to conceal. Here are a number of protective measures that can help guard against the theft of a laptop.

General Security Precautions

In the office, the laptop should be in a secured dock or locked with a security cable recommended by the laptop manufacturer.
At night, the computer should be locked in a cabinet or taken home, not left in the dock or on a desk (even if locked).
A pull-cord alarm or motion-detection alarm can be installed to bring instant attention to the device if it is disconnected or moved.
The laptop may be equipped with a smart chip that passively identifies its passage into and out of your office building if it has a coded-entry or pass-card security system.
The owner's identity may be marked permanently and prominently on the laptop and its removable attachments, even chemically etching antitheft tattoos. International recording and tracking are available with most tag services.
Accurate office records of assignment, serial and fixed asset numbers and features, should be maintained.
Access should be password protected, and dial-in codes and numbers should be encrypted.
Files must be backed up daily.

Traveling with a Laptop

Always keep the laptop in your possession and never check as luggage.
At security checkpoints, only place the laptop on the conveyor once your passage is possible.
Pack the laptop in a travel case that does not reveal its contents.
The security cable or alarm should be part of the standard accessories that always travel with the unit.
Use the security cable and/or alarm at all times: in hotel rooms, on office visits, at trade-shows, etc.
Do not leave the laptop unattended when it is connected to projection equipment.
Laptops should not be left in view in a car; lock it in the trunk. Store the computer in a thermal cooler if extreme temperatures are possible.
Do not leave the computer in the car overnight, even if it is locked in the trunk.
All sensitive company files should be maintained on separate disks and/or external hard drives.

Despite one's best efforts, thefts do occur. Permanent identification marks on the equipment and back-ups of the data files will help minimize the loss. The firm should investigate whether its insurance protection covers theft of the hardware and the intellectual property.

Check Your Financials

What's the most important aspect of choosing an insurance carrier? If you said, "price," you've got a lot of company, but you're wrong. Actually, the most important criterion should be the financial ability of your insurance carrier to pay and defend claims. In 2003, this could be very important to you.

Losses from 9/11, hurricanes, directors and officers of mismanaged companies (too often in the news of late), asbestos and other problems have depleted the reserves of many companies. The financial strength of your carrier could be in question. How do you find out about your carrier?

Several companies make a living "grading" the financial strength of companies such as A.M. Best, Standard & Poor's, and Moody's (you can visit their web sites and purchase information on specific companies.) Common wisdom says that you want an insurance company with a grade between A+++ and A-. The risk of default for an "A" rated insurance company is pretty small. Although a "B" grade may have been okay when you were in school, it is not good for an insurance company. The risk of default has increased. You should definitely read the fine print and find out why the analysts gave the carrier a "B." It is a warning signal.

"Financial strength is not my problem," you might think when you've got an insurance broker and your state has an Insurance Guaranty Fund. Wrong. If your insurance carrier was solvent without financial problems that "reasonable diligence" would discover at the time the policy was written, your agent isn't liable. Note that downgrades from "A's" to "B's" worry good insurance brokers. Most feel obligated to inform you about the downgrade and potential financial risk to give you an option to replace the coverage immediately. Guaranty Funds? Stand in line and see how it feels to wait your turn when your client is demanding money.

What about claims? If your company were to declare bankruptcy, who would pay your lawyer? Who could approve a claims settlement? Often this falls into the province of your state Insurance Commissioner. The commissioners are anxious to protect the remaining assets of the carrier to stretch them as far as possible. Sometimes commissioners decide that only a percentage of each claim gets paid. Some state funds don't cover the claims of "large" firms. Check the rules in your state.

It can happen to you. In the last twenty years, Imperial, Pinetop, Rockwood, Walbrook/Weavers, Golden Eagle, and Alpine (carriers who insured architects and engineers) were put under supervision by their regulatory authority. Reliance was placed in liquidation within the past three years. Another carrier who insures architects and engineers, Kemper, just suffered a downgrade to a "B+." There may be others who face the same prospects in 2003.

As a consumer of insurance, it is up to you to investigate the financial strength of the company that protects your financial well being. Do your homework. Then look at the coverage, service, and commitment to the line of business� as well as the price. Don't jeopardize your business because you didn't take time to investigate your own insurance company.

To Your Health: Cancer Q & A

How much do you know about cancer? Check your knowledge by reading the often-asked questions below and their often-surprising answers:

What Exactly Is Cancer?
There are actually more than 200 diseases that are called "cancer," all of which involve the out-of-control growth and spread of abnormal cells. These cells can accumulate and form tumors that may compress, invade, and destroy normal tissue. Leukemia, for example, is a form of cancer in which cancer cells originate in the blood system and circulate through other tissues, where they can accumulate.

How Prevalent Is Cancer?
In the United States, half of all men and a third of all women will get cancer during their lifetimes. However, thanks partly to improved detection and treatment methods, today millions of people are living with cancer or have been cured of the disease.

How Many People Survive Cancer?
The five-year survival rate for all cancers is 59 percent. For cancers that are screenable-namely, breast, colon, rectum, cervix, prostate, testis, oral cavity, and skin-the five-year survival rate is much higher, at 80 percent. The American Cancer Society estimates that survival could be as high as 95 percent if everyone got the screenings they need.

Can You "Catch" Cancer?
No, not in the way you catch a cold. But it is possible to catch diseases and viruses that can lead to cancer. Around 15 percent of cancers are caused this way. For example, cervical cancer almost always results from a sexually-transmitted infection, and liver cancer is 100 times more likely in victims of hepatitis B.

Can Cancer Be Prevented?
To a certain degree, yes. A recent British study estimated that 60-70 percent of all cancers could be avoided by making small, ongoing lifestyle changes. Lung cancer, the leading killer among cancers, is 98 percent preventable. Simple strategies for cancer prevention include not smoking, eating a fiber-rich diet that emphasizes plant foods, practicing safe sex, and protecting your skin from the sun's rays.

The bottom line: when it comes to cancer, what you don't know can hurt you. So review these facts, and see your doctor to get the cancer screening you need.

Caught in the Conundrum of Carrier Collapse?

Do you find the insurance industry chaotic, especially with professional liability insurance? Although the AIA's Commended Program-the CNA/Schinnerer program sponsored by the AIA Trust-has used sound underwriting and investing principles to maintain stability, many other carriers are facing financial challenges, with stockholders and hostile financial markets forcing carrier changes.

If you carry professional liability insurance, you soon may be faced with confusing choices and uncertain coverage. Be aware of the following:

A Waiver Letter from Your Broker
The role of an insurance broker is to represent your best interests. Your broker works to find a program that meets your financial concerns, aversion to risk, and desire for risk management services. If your insurance program develops financial troubles and is downgraded, your broker should inform you of the problem.

If you receive a letter from your broker advising you of a financial downgrade of your insurer, what do you do? You may choose to remain with the carrier-in this case, your broker will want you to acknowledge that you do so at your own risk and waive your rights against the broker based on your detrimental reliance on the broker's advice. An alternative is to ask your broker to move your account to a more stable carrier.

Notice of a Sale of Your Policy
Some carriers in financial trouble simply close down and sell off their "book of business." This transfers the rights to renew policies to a new company that you did not choose, but does not usually transfer liability. The company you paid for insurance coverage may still be in your corner, even though it no longer wants or can afford your business. And if you already have a claim being handled, it may have to be "run-off" by the company that no longer has the assets or personnel to manage the claim effectively. Your options at this point are few. Settling a claim quickly may be your only option and may end up costing you far more than your deductible obligation. If you are claims-free, you may want to select your own carrier rather than be pushed to a new company.

A Declaration of Insolvency by Your Insurer
Some firms have had the unhappy experience of working through claims with failed insurers. If a court is administering the liquidation of a bankrupt insurance carrier, a court-appointed receiver will create a procedure for processing claims. The receiver also tries to recover assets or generate recovery for the carrier through reinsurance or subrogation claims. Claims against a failed carrier are divided into categories depending on whether they are indemnity claims, claims expenses, or defense costs or whether they predated the liquidation proceedings. The process also takes into account whether a state Insurance Guaranty Fund backs up the carrier for any part of its business; this usually does not apply to professional liability claims. Settling a claim from a client or third party may take years and finding a new carrier may be a challenge.

Now more than ever, architects need to work with an independent insurance broker who understands the financial fragility of the insurance business and can provide knowledgeable advice on the value of a stable insurance carrier. Ask your broker today for information about the CNA/Schinnerer program.

Asbestos Remains a Legal Irritant

You may think that mold claims are the newest threat to your hard-earned profits. But asbestos litigation is back and seemingly more popular than ever.

Asbestos lawsuits have moved from targeting the manufacturers and distributors of asbestos products to those who own property that has asbestos, manufacturers that used asbestos in small quantities, and firms that handled asbestos or installed items containing asbestos. In addition, the spread of litigation means that any firm involved in the design or construction of a facility that contained asbestos has become a "potentially responsible party."

Studies Point to Litigation Explosion
Fitch Ratings, a company that estimates the future liabilities of insurance companies to evaluate their long-term survival, recently completed a study titled "Asbestos: Impact on the U.S. Insurance Industry." In the report, the surge in lawsuits against "peripheral defendants" was identified as a significant threat. According to Fitch, more than 2,400 defendants are now being actively pursued.

The outlook is even more pessimistic in a recent report prepared by the RAND Corporation's Institute for Civil Justice. The report from this public-policy think tank states that attorneys representing more than 600,000 plaintiffs have filed claims against more than 8,000 defendants.

Attorneys Pursue Peripheral Defendants
Starting in the 1970s with the first wave of litigation involving asbestos miners and their employers, the recovery of asbestos compensation has been a major source of income for plaintiff attorneys. The initial wave of litigation led to dramatic settlements. But after the bankruptcy of many mining and manufacturing targets-and the exhaustion of their product liability insurance coverage-the litigation turned to other defendants. Claims now extend to contractors and specialty subcontractors. And architecture firms involved in construction management and as part of a design-build entity also are targets.

Architects Can Be Defended
Being subjected to litigation is always possible. Being held liable for damages caused by the release of asbestos fibers, however, is less likely. In most states, design and construction firms are protected from liability related to projects in the distant past by statutes of repose. These statutes set time limits on the rights of all parties to sue for negligence those involved in the design or construction of improvements to real property.

In addition, architects are protected in the tort law system if they can show that their services met the common law standard of care for professionals at the time the services were provided. Thus, the specification of asbestos-containing materials before those materials were shown to be unsafe usually is seen as a reasonable and proper professional service. Unlike product manufacturers, architecture firms are not subject to strict liability for asbestos.

The Federal Government May Force a Legislative Remedy
Efforts are underway to structure a legislative solution that would remove the jurisdiction of states over asbestos litigation and establish a federal system of victim compensation payments. The federal preemption of states' rights would minimize the costs of defense, stabilize insurance reserves to pay future claims, cap the recoveries possible to victims, and remove much of the financial incentive for attorneys to represent plaintiffs in personal injury actions.

You may think that your firm is either too small or too removed in time or responsibility from the use of asbestos to become involved in a lawsuit. The new wave of plaintiff litigation, however, may consider your firm yet another target.

Handling An Asbestos Claim

If an attorney representing a party allegedly harmed by exposure to asbestos contacts your firm, expect the worst. Immediately contact your professional liability insurer. If your firm is insured by CNA/Schinnerer, assistance can be provided at no cost to you to head off your involvement in a meritless claim. This is where CNA's free Pre-Claims Assistance program provides a real benefit. Historically, early involvement by expert CNA claims personnel and legal counsel experienced in claims and potential claim situations has lessened a design firm's exposure. Call 800-CNA-ASST to take advantage of this free service.

Finding the Best Broker for You

Your professional liability insurance broker should deliver important services to keep your firm viable. Firms select brokers for different reasons:

Comfort Level
It's important to feel comfortable with your broker, who may be a friend, the person who handles your other lines of insurance, or the one who is closest to your office. The CNA/Schinnerer program works with thousands of brokers and spends time educating them on the legal and economic issues of architecture practice. In tough times, more expertise may be needed.

Experience
Finding the program that meets your financial concerns, aversion to risk, and desire for risk management services may not be that difficult. But representing you to obtain the lowest realistic quote, the most responsive claims service, and the educational and management assistance you need requires a specialist. Go to the AIA Trust Web site to link to a list of brokers.

Independence
The role of a broker is to represent your best interests, not those of an insurance company. If your broker has exclusive ties to sell one company's coverage, you may want to find someone truly independent.

New Consumer Arbitration Process

The American Arbitration Association (AAA) has adopted new "Supplementary Procedures for Consumer-Related Disputes." The new rules may have a significant impact on claims by homeowners and others, defined as "consumers," against architects. Although the AIA's Commended Program of professional liability insurance supports the alternative dispute resolution of claims, architects may want to rethink agreeing to arbitration.

The new procedures are meant to expedite and reduce the cost for the consumer, which is defined as a person who "buys or leases goods or services which are intended primarily for personal, family or household use." The procedures apply whenever a contract requires arbitration. Thus, even if a standard B141 or B151 agreement refers to the AAA Construction Industry Dispute Resolution Procedures, these new guidelines also apply.

The procedures distinguish among three classes of claims: those under $10,000; those between $10,000 and $75,000; and those higher than $75,000. These thresholds are significant because they affect both the process and the cost of arbitration.

According to CNA/Schinnerer, consumers may be able to manipulate the new procedures in a way that shifts costs to the architect. For claims under $10,000, a consumer will need to pay only a token amount ($125) to have a small claim heard as a desk arbitration, whereas the firm must pay all of the nonrefundable administrative costs and its half of the arbitrator's fee. Finally, the consumer's share of the arbitrator's fee is capped. It is possible, therefore, for the client to agree to arbitration for meritless claims above $10,000 and to take financial responsibility for the arbitrator's fee. The firm will have to pay for several days of hearings and most of the arbitrator's fees. Under such economic threats, architects may be forced to settle under disadvantageous terms.

For more information, contact the AAA through www.adr.org.

Retirement Nest Eggs

Now that you've endured another tax season, it's time for a thorough self-assessment of your business to help guide your retirement planning. It may be time to consider offering a tax-qualified retirement plan for your firm. There are many sound reasons to set up a plan; however, there may be just as many concerns keeping you on the sidelines. Consider this: procrastinating may cost you the many advantages that qualified plans can offer you and your firm.

Today, architecture firms face a number of problems. Attracting and retaining skilled talent has become increasingly competitive and is a top concern. Having a retirement plan available for your employees can prove to be a valuable tool.

Designing qualified retirement plans that meet the retirement savings needs of owners and their employees is not as difficult as you might think. The variety of retirement plans available to smaller businesses has become quite substantial. Since 1991, the AIA Trust has worked with the Equitable's Members Retirement Program to make it easy for you to get started and realize all the benefits that a tax-qualified retirement plan offers. Among these benefits are tax-deductible contributions, tax-deferred growth of any earnings, and a solid, cost-effective benefit for you and your employees.

So stop procrastinating. Don't risk losing another year of planning and accumulating that retirement nest egg. Call an AIA Members Retirement Program specialist toll-free at 800-523-1125, extension 6654. You can even request a free, personalized information package for your firm's retirement plan. Of course, there's no obligation.

Are You Covered by Your Auto Insurance Policy?

Most Americans spend more time considering what's for dinner than what kind of auto policy will work best for their lifestyle-an important financial decision.

The best way to confirm that you have the right coverage is simply to call your auto insurance representative and request an "insurance counseling" session to review your policy. But, if you don't have time to do that now, you may want to test your auto insurance IQ with the following questions:

What is the difference between bodily injury liability coverage and medical payments coverage?
What is the difference between "split limits" liability coverage and single limit liability coverage?
What is the difference between property damage liability insurance and collision insurance?
Should I buy collision insurance if my car is an older model?
What is the difference between collision insurance and coverage for damage to your automobile other than collision insurance (comprehensive)?
Will my policy pay for me to rent a car if my vehicle is stolen?
What is uninsured and underinsured motorist coverage insurance?

If you're unsure of the answers, it's time to re-evaluate your auto coverage. To find out more about coverage options, call Liberty Mutual's Insurance Counseling Center at 800-524-9400.

Long-Term Care Insurance-Now Available

According to statistics provided by the Health Insurance Association of America, Wall Street Journal, and Modern Maturity, a typical stay in a nursing facility costs at least $50,000 per year, lasts an average of 2.5 years, and affects almost one in every two Americans age 65 and older. The U.S. Government Accounting Office estimates that these expenses (including inflation) will triple in the next 20 years.

For many, the solution is long-term care insurance. Most buy it to protect assets and to preserve independence. However, with more than 100 different policies on the market, finding the right one can be difficult and exhausting. This is where the AIA Trust can help.

The AIA Trust recently approved the endorsement of a service that will give AIA members the ability to shop for long-term care insurance effortlessly. This service is also available to employees, parents, and in-laws of AIA members. Available by Internet or Phone

Arranged by Affinity Insurance Services, Inc., this program is provided by a company called Long Term Care Quotes (LTCQ), a buying service for members who wish to shop for long-term care coverage. After you contact LTCQ, via the Internet or phone, the company will send you an easy-to-understand spreadsheet with a personalized proposal from three companies for long-term care and home nursing care. The spreadsheet includes plan benefits and options, as well as personal quotations from the three companies.

Once you choose the company and product that suits you best, you enroll directly through LTCQ. Additional quotes are available on request.

LTCQ uses a host of A-rated companies, all of which are committed to the long-term care industry.

What Does Long-Term Care Cover?
This coverage provides basic benefits for the costs associated with nursing home care and home health care, such as:

Nursing facility care, including assisted living
Home nursing care and community-based care
Skilled intermediate and custodial care
Adult day care
Respite care
Hospice care
Homemaker and meal preparation services
Medical equipment/ in-home safety devices

Many other options and benefits are also available, allowing you to customize your long-term care insurance plan based on personal needs or financial considerations:

From $30 to $400 in daily benefits
Benefit periods from one year to lifetime
Elimination period choices from 0 days to 365 days
Premium discounts for preferred health status and spouse coverage
Renewal guaranteed as long as the premium is paid when due
Portable from state to state
No exclusions for Alzheimer's disease
Waiver of premium while in a nursing home

The premium rate is locked in at your age at the time of purchase. The younger the member at the time of purchase, the lower the rate will be for the life of that policy. Most individuals who purchase this product do so before age 65.

How to Use This Service
Call LTCQ at 800-587-3279, or visit the AIA Trust's Web site at www.TheAIATrust.com and click on "Long-Term Care." Identify yourself as an AIA member or member affiliate. Provide your name, address, age, gender, and marital status, and LTCQ will provide the three-company spreadsheet for your review.

The Value of an Independent Insurance Broker

Buying insurance is a major business decision. An architecture firm, therefore, will want to select a broker in much the same way it selects its lawyer and accountant-with care and scrutiny as to qualifications, independent judgment, services available, cost, understanding of the profession, and the ability of the broker to work with the firm to meet its insurance needs.

Getting the Most for Your Money
Independent brokers-rather than agents for a specific carrier-examine the insurance market to obtain quotes of premiums for specific levels of coverage and service. They evaluate those quotes and advise the firm about which policies, in their professional opinion, fit its needs. This expertise and service is part of the broker's commission.

While some brokers work on a fee basis, most receive a commission-essentially the architecture firm's money-paid to them by the insurance carrier out of the firm's premium. Commission rates vary, and the firm has a right to know the commission level for each quoted premium.

In some cases, a broker is an agent of a specific carrier. Although the agent may be able to offer coverage from other carriers, there may be a financial advantage to the agent to direct the firm to the agent's insurance company. Again, firms have a right to know whether a broker has an agency relationship with a specific carrier.

Four Functions of Your Broker

As your advocate in the professional liability insurance marketplace, a broker should be familiar with your firm's services and primary areas of expertise. Your broker should know how to present your firm accurately and in the best possible light so that underwriters can address your firm's unique needs and base the premium on your firm's liability exposures. With your broker's assistance, you can then evaluate your range of liability exposures and identify various forms of insurance available to protect you from financial loss.
Brokers should serve as your independent risk management advisors. They should be able to evaluate the coverage being offered by various markets and provide solid advice on the merits and disadvantages of each policy. Before recommending a specific insurance to your firm program, they should also evaluate the stability and financial strength of each carrier; the premium cost, limits of liability, and deductible options; coverage terms; claims management; and risk and practice management techniques.
Brokers should provide loss prevention support throughout the year. This may include reviewing your professional service contracts for risk management and coverage issues and assisting you in negotiating a fair contract.
Good brokers will help you work through a claim situation. Your broker should be able to distinguish between which claims will have an impact on your premium and which will not. In addition to knowing how to file a claim or to ask for preclaims assistance, your broker should be familiar with the defense attorneys and claims people involved in your claim to provide you with the best possible service throughout the claims process.

In summary, your broker and professional liability insurer should be viewed as your partners. They are additional resources to assist you on all matters related to your professional liability insurance coverage.

The AIA Trust-sponsored professional liability insurance program-the CNA/Schinnerer program-works through independent brokers selected by policyholders. While many of these brokers are not experts in professional liability insurance, some of them are the most experienced and specialized brokers in the business. For a list of brokers that many AIA members use in their relationship with the AIA's Commended Program of professional liability insurance, go to www.PlanetAEC.com and click on the "Find a Broker in Your Area" link in the right margin. Or simply go to www.schinnerer.com/tools_apps/brokerloc.html.

Check the Financial Health of Your Insurance Carrier

What's the most important aspect of choosing an insurance carrier? If you said "price," you've got a lot of company, but you're wrong. Actually, the most important criterion should be the financial ability of your insurance carrier to pay and defend claims. In 2003, this could be very important to you.

Losses from 9-11, hurricanes, directors and officers of mismanaged companies (too often in the news of late), asbestos, and other problems have depleted the reserves of many companies. The financial strength of your carrier could be in question. How do you find out about your carrier?

Companies such as A.M. Best, Standard & Poor's, and Moody's make a living "grading" the financial strength of companies (you can visit their Web sites and purchase information on specific companies). Common wisdom says that you want an insurance company with a grade between A+++ and A-. The risk of default for an A-rated insurance company is fairly small. Although a B grade may have been acceptable when you were in school, it is not good for an insurance company. It is a warning signal that the company's risk of default has increased. You should definitely read the fine print and find out why the analysts gave the carrier a B grade.

"Financial strength is not my problem," you might think when you've got an insurance broker and your state has an insurance guaranty fund. Wrong. If your insurance carrier was solvent and without financial problems that "reasonable diligence" would discover at the time the policy was written, your agent isn't liable. Note that a downgrade from an A to a B worries good insurance brokers. Most feel obligated to inform you about the downgrade and potential financial risk to give you the option to replace the coverage immediately. And if you're depending on state guaranty funds for protection, stand in line and see how it feels to wait your turn when your client is demanding money.

What about claims? If your insurance company were to declare bankruptcy, who would pay your lawyer? Who could approve a claims settlement? Often this approval falls to your state insurance commissioner. The commissioners are anxious to protect the remaining assets of the carrier in order to stretch them as far as possible. Sometimes commissioners decide that only a percentage of each claim gets paid. Moreover, some state funds don't cover the claims of "large" firms. Check the rules in your state.

In the last twenty years, many carriers that insured architects and engineers, including Imperial, Pinetop, Rockwood, Walbrook/Weavers, Golden Eagle, and Alpine, have been put under supervision by their regulatory authority. Reliance was placed in liquidation within the past three years. Another carrier that insures architects and engineers, Kemper, has recently been downgraded to a B+. Other companies may face similar prospects in 2003.

As a consumer of insurance, it is up to you to investigate the financial strength of the company that protects your financial well-being. Do your homework. Then look at the coverage, service, and commitment to the line of business-as well as the price. Don't jeopardize your business because you didn't take the time to investigate your own insurance company.

Can Your Identity Be Stolen?

Do you know how identity theft can negatively affect your life? More and more people are becoming victims of identity fraud, which leads to bad credit reports and may prevent them from purchasing a new home or automobile.

How Identity Theft Occurs

Stolen wallets containing personal identification
Personal information retrieved from the trash
Personal data found in your home
Completion of a change of address form diverting your mail to a location of the thief's choice
Stolen mail
Employee records at your workplace
Discarded charge receipts and dishonest store staff
Internet tampering

How to Protect Yourself

Know what security measures are taken at work to protect your personnel file.
Secure personal information in your home away from roommates, visitors, and service workers.
Put passwords on all of your credit cards and bank and phone accounts. Keep the document with this information in a safe place. Put only the last four digits of your account number on your check payments to these accounts.
Order a copy of your credit report annually to check for unusual activity.
Purchase a $25 paper shredder for your home to destroy mail and receipts.
Use caution when supplying personal information over the Internet or the phone.
Limit personal information printed on your checks; do not include your Social Security number or home telephone number.

Insurance companies may now offer an additional coverage option to your homeowner's insurance that would help protect you financially if identity theft occurs. For more information on this coverage, please contact the Liberty Mutual Insurance Group at 800-524-9400 or contact your local Liberty Mutual sales representative.

Overcoming Obstacles to Retirement Plan Sponsorship

According to the summary of findings for the 2002 Small Employer Retirement Survey (SERS), an in-depth annual survey of retirement plan sponsorship among small employers, low retirement plan sponsorship continues to be a public policy challenge. According to data from the U.S. Bureau of Labor Statistics¹, 34 percent of all workers in small, private establishments were covered by a retirement plan in 1999. This is significantly lower than the 64 percent for larger businesses. The percentage is much lower for the smallest establishments.

Employers who responded to the survey cited several reasons for not sponsoring a retirement plan:

Costs too much to set up and administer
Administration is too burdensome
Possibility of being out of compliance with government regulations
Possibility of being held liable by the employee for investment decisions
Lack of familiarity with the various types of retirement plans available

Fortunately, 32 percent of respondents from companies without a retirement plan said they were likely to start offering a plan in the next two years.

The AIA Trust has commended Equitable's Members Retirement Program since 1991 because Equitable helps members overcome all of the obstacles listed above.

Call an AIA Members Retirement Program specialist toll-free at 800-523-1125, extension 6654. You'll find that Equitable has designed a program that is easy and inexpensive to get started and maintain.

¹U.S. Department of Labor, Bureau of Labor Statistics, "Employee Benefits in Private Industry," News, USDL 01473, December 19, 2001.

Independent Contractors, Components, and 401(k) Plans

There are many misconceptions surrounding 401(k) plans for independent contractors and components. The information below may help to set things straight.

Independent Contractors
One-person businesses, such as independent contractors, now can establish 401(k) plans. Under prior law, there were no tax deductions for 401(k) contributions if you already were making the maximum contribution to a profit-sharing plan. However recent changes in the tax laws provide for a new "Owners 401(k) Plan," providing one-person businesses with an opportunity to set up individual retirement savings plans. With an Owners 401(k) Plan, federal tax deductions on contributions can be more than two times greater than with an SEP or profit-sharing plan. Those 50 years of age or older may contribute even more. In addition, if you employ a spouse or other family members who are not paid or receive minimal wages, there are now distinct tax advantages to compensating them with the Owners 401(k) Plan. This strategy could also make good sense if you work for another employer and consult or run a business on the side. The new Owners 401(k) Plan is an important retirement asset to consider for your future.

AIA Components
In the past, nonprofit organizations could not participate in 401(k) plans; hence, most offered 403(b) plans. Since the beginning of 1997, all tax-exempt organizations are allowed 401(k) plans. Despite the change in law, many nonprofits still do not have such plans. The cost of setting up and maintaining 401(k) plans is often to blame. However, the AIA Member Retirement Program never charges the customary enrollment fee for component staff-so there's no setup cost. There also is no fee for administrative requirements like preparing annual 5500 reports. If your component has no plan, the AIA Member Program 401(k) plan is the answer.

You can call an AIA Member Retirement Program specialist at 800-523-1125, ext. 6654, to find out more about how any of the offered plans will work for you. If you adopt a plan by December 1, 2003, the Equitable has arranged to waive the customary $25 enrollment fee for all AIA members, their staff, and components, so it costs you nothing to get started.

Benchmarking Your Insurance Coverage

All firms want to minimize insurance costs. Most, however, want to be effective in protecting their business and personal assets from catastrophic claims. Project owners also want to control their risk, and they know that professional liability insurance is necessary to rectify the harm they might suffer due to professional negligence.

Architecture firms carry a wide range of per-claim and annual aggregate limits. While some still carry the same amount as the limit on their coverage for any claim and their total coverage limit for the year, many firms purchase annual aggregate limits that are two to three times their per-claim limit. Firms that complete many projects during the year see the higher aggregate limits as a prudent way to provide both defense and indemnity support for claims on a variety of projects.

The amount of insurance a firm carries is a highly firm-specific decision. It depends on the firm's ability to manage the risk of a professional practice, the firm's "appetite" for risk, the local legal climate, the type of projects undertaken, and the reputation of clients. Increasing insurance coverage often depends on project-specific requirements set by clients. Some firms understand that the upper limits of coverage can be more cost effective; they carry higher limits not only to protect their financial viability but also to serve as a marketing tool when pursuing larger projects or new clients.

Understanding Disability Insurance

As an architect, your earning potential may be your greatest asset, and one well worth protecting. You insure your home, your car, and your office, but what about the earning power that created all these things? If illness or injury leaves you unable to work, your short- and long-term financial losses could be staggering. For this reason, disability insurance could be the most important piece of your financial puzzle.

Your chances of becoming disabled are greater than you think. At age 45, you have a one in five chance of being disabled--with the average disability lasting more than four years, the Society of Actuaries reports. Since the average person under age 55 is disabled for at least four years, how would you support yourself and your family if you were disabled and couldn't work? The simple answer: protect your income with disability insurance. While disabled, you would receive tax-free dollars every month from the insurance company to help replace your current income.

Disability insurance can be complicated, though, with many different types of policies available. For example, the AIA Trust endorses a group disability plan underwritten by New York Life Insurance Company (NYLIC). Other insurance companies may offer individual disability plans. Comparison of the AIA group and individual plans is difficult because of different policy forms. Here are some issues to consider when shopping for disability coverage.

How Much Monthly Disability Insurance Is Adequate?
A simple rule is that the amount of your monthly disability insurance should equal your take-home pay, plus pension contributions normally made each month. If your salary is $100,000 and the after-taxes net about $60,000, this equates to $5,000 a month needed in disability coverage. The monthly insurance benefit should replace your net take-home pay so your current lifestyle does not change. Disability insurance guarantees this income.

Cost is a major difference between group and individual disability plans. Premiums paid for a private, individual plan are level and never change for the life of the policy. The premium is a substantial amount that in essence "overcharges" the member in the earlier years to cover upfront expenses. This "non-cancelable" rate structure, found in most individual plans, sets high fixed rates at inception to collect sufficient premiums to invest over time, which subsidizes the fixed rate as the insured gets older and health risks increase. In addition, expenses such as large commissions to agents, company profit, and taxes make individual plans more costly.

The AIA's endorsed group plan offers disability rates that are very low at policy inception, collecting only what's needed to cover modest expenses and the risk of disability associated with the member's current age. The rate then increases every five years as the member's health risks increase. There are no heavy expense loads, which keeps rates affordable. Rates are not guaranteed and may be increased by the insurance company if loss experience is poor (or may be reduced if the loss experience is favorable).

For example, a 30-year-old member purchasing $5,000 of monthly benefits (assuming benefits to age 65 and a 90-day waiting period) will pay about $1,200 per year for an individual plan. Under the AIA's endorsed plan and assuming the same benefit options, the member pays $292 annually until age 35, $475 at age 40, and so on until age 50 when the premium matures at about $1,200 per year. In this example, the member pays significantly less for the first 20 years of coverage. This example applies at any age of entry.

Gender Differences
Women pay a higher premium than men under an individual plan than under a group plan. This is because the average frequency of lifetime illness is higher for women and, therefore, statistically their chances of disability are greater. Under the AIA group plan, however, women and men pay the same rate.

Note: The same cost comparisons apply at any age of policy purchase.

Total Disability
The "total disability" definition is a significant consideration when buying disability insurance. It is usually defined as "the insured's inability to work full time at his or her current occupation for which he/she is educated and trained, and must be under a doctor's care." This preferred definition protects the specialty of working as an architect, and the disabled member cannot be forced to work at any unsuitable occupation.

Some policies indicate that if a member is disabled and unable to work at "his/her own occupation" but capable of working in any occupation after 24 months, then benefits will cease. The preferred "total disability" definition protecting "your own occupation" with no time limits or other restrictions, as in the AIA plan, is the one to consider.

If the member voluntarily works at any other occupation other than the architectural position held at time of disability, the private plan will continue to pay full benefits regardless of the other income, whereas the AIA group plan will reduce the amount of the monthly disability benefit proportionate to the loss of income. This is called a "residual disability benefit." The aim of the group plan is to replace the member's lost income due to a disability--not to increase the profitability of the disabled person. The AIA Trust Plan has a voluntary return-to-work provision, so if disabled, the insured is not forced to return to work at any occupation.

Guaranteed Renewability
An individual plan's guarantees that the company can never cancel the policy, as long as the member pays the premium when due, is called "guaranteed renewability." The AIA Trust plan cannot use this term; however, the AIA Trust and not the insurance company controls the reason for any termination. Under the AIA contract, New York Life cannot cancel the members' disability insurance policies under any other scenario. Since the purpose of the AIA Trust is to ensure quality benefits for AIA members, the Trust intends to continue coverage.

There may be other differences between group and individual plans depending on the policy offered. Generally, group policies are less expensive, while individual policies may offer slightly better benefits in some areas. An important issue is whether the company offering coverage is an A-rated carrier that specializes in disability insurance--a strong indicator that the company will be there for you when you are disabled.

One thing is for certain: architects need disability insurance--whether it's provided by an employer or purchased independently by the member.

The AIA Trust Insurance Office in Chicago, 800-255-8215, can answer questions about disability insurance or provide a personal quote. The AIA Trust Disability Plan is underwritten by New York Life Insurance Company (A+ rated).

Learn to Manage Risk And Get LUs At CNA/Schinnerer Seminars

Since 1972 the CNA/Schinnerer professional liability insurance program has conducted regional risk management seminars for the AIA. These are part of the services the CNA/Schinnerer program provides as the AIA's Commended Program of professional liability insurance. The seminars are not insurance marketing programs_they address the risks architects face and discuss ways to improve practice management.

Schinnerer's seminars provide the tools architects need to manage the demands and expectations of clients and other participants in the project-delivery process. The seminar is divided into two freestanding half-day sessions. Planning and design phrase issues_including risk management concepts, the legal context of project delivery, the creation of a project work plan, and communication strategies and techniques_are addressed in the morning. The afternoon session focuses on construction-phase issues such as review and approval of submittals, issuance of certificates, dispute management, and inspections.

AIA members can register for one or both of the sessions. Each session is accredited for 3.5 HSW learning units (LUs). The fee for each part of this program is $125 if you register online and use your credit card, and $135 if you mail or fax in your registration or pay by check. To register online, go to the secure site at https://riskmgmt.datahiveonline.com. You may also fax a request for more information to the Schinnerer Risk Management Department, 301-951-5444, or visit the Schinnerer Web site at www.PlanetAEC.com, click on "Risk Management," then click on "Design Firms and Consultants" on the left-side menu and look for "Regional Seminars" (listed under "Seminars").

Upcoming Regional Seminars

New Orleans: Wednesday, November 12, 2003 - Doubletree Hotel
San Francisco: Thursday, December 4, 2003 - Sir Francis Drake Hotel
Minneapolis: Thursday, February 19, 2004 - Millennium Hotel

Contractual Risks on Native American Projects

Increasingly, architecture firms are providing services for Native American businesses and governments. These contracts are often governed by tribal codes and construed by tribal courts.

Often in professional service contracts there is an explicit "choice of laws" provision. The standard AIA B141-1997, for example, is to be interpreted according to the laws "of the principle place of business of the Architect." Such provisions specify the judicial forum for resolving disputes under the contract. An agreement to apply specific law is generally upheld if it is the result of negotiation between contracting parties. In a service contract for a Native American client, it is beneficial for the architect to negotiate the application of a known set of laws. Avoiding litigation in a tribal court by mandating arbitration or mediation is prudent.

Special Risks
Working for Native American entities can increase opportunities-and generate unknown risks. The Native American economy has grown at an extraordinary rate. This increased prosperity has resulted in a greater demand to develop tribal lands and related locations.

In most cases, Native American tribes have specific rules and codes of law. Rarely are there precedents to guide tribal courts on complex matters such as design and construction disputes. In some instances, tribal custom prevails over any codified law and is often unspecified, making research into tribal law difficult.

Sovereign Immunity
Native American clients-whether a tribe or a tribal-authorized business-can be protected by sovereign immunity. Native American tribes exert influence over development and construction both on tribal lands and beyond tribal boundaries. This status precludes interference by federal and state courts on many issues of tribal governance and bars lawsuits against the tribe in state court. As more projects are designed for Native American sovereign nations, the choice of laws and dispute resolution methods become increasingly important.

Litigation May be Futile
In a typical suit arising out of the construction of a building for a Native American client, neither federal nor state courts will have jurisdiction. The general rule is that a state court lacks jurisdiction over a claim asserted by a non-Native American against a Native American if the claim arises on Native American land. And state courts often have no jurisdiction over civil claims involving a Native American for a contractual transaction outside of a reservation. For the most part, no state may assume jurisdiction without tribal consent. Local legal counsel should examine the applicable state legislation to determine the extent to which their state has acquired jurisdiction over civil claims that involve a Native American party or arise on sovereign tribal property.

Dispute Resolution Provisions Are Essential
A contract is not only a statement of the scope of services; it also forms the basis of the professional relationship. The AIA consensus contract forms are well understood, and their terms and conditions have been construed in courts of law. That is not the case with contracts that apply tribal law to a contractual relationship.

Most courts have held that a tribe may waive its sovereign immunity by agreeing to submit contractual disputes to binding arbitration. The design team can evaluate its contractual risks more clearly if it insists that the forum for dispute resolution applies standard rules of mediation and arbitration. If your firm is pursuing commissions with Native American clients, prudent negotiation of contract terms is essential.

When the Power Goes Out

In light of the electric power outages so many have experienced this past year, you may want to prepare yourself for future blackouts by following these safety tips from the U.S. Consumer Product Safety Commission.

Indoor heating devices can cause fire and electrical hazards, but routine preventive maintenance can stop problems before they start. Read and adhere to the operating instructions outlined in your owners' manuals.
Have your home's chimney and flue checked regularly for blockages and corrosion, and be sure there is adequate ventilation before using fireplaces or stoves. Install battery-powered smoke detectors and test them regularly.
Generators, heaters, and other devices can emit toxic carbon monoxide. Because carbon monoxide may pose a threat at any time-not just during power outages-consider installing battery-operated carbon monoxide detectors in your basement, outside your bedroom, and in other areas where you might put a smoke detector.
Be aware that cordless and speaker telephones will not function when the power is out. Make sure that you have an alternative way of calling for help. You may want to consider keeping at least one conventional (corded) phone or cellular telephone in your home.
Use surge-protectors for all electronic equipment (televisions, computers, VCRs, stereos, etc.). Turn off or unplug all electric devices during an outage to guard against power surges destroying equipment and to avoid running equipment unattended-especially space-heaters-in case power is restored while you're away.

Liberty Mutual insurance coverage is available to AIA members through Group Savings Plus^® which provides special member discounts on top-quality, affordable insurance with the convenience of checking account deduction or direct bill at home. For more information or a no-obligation quote on your auto and home insurance, call 800-281-1329 or go online to www.libertymutual.com/lm/aiatrust.

How Much Financial Loss Can You Afford?

Frequently, home improvements may not be reflected in current homeowner's insurance policies. It's also important to verify that other information, such as construction date of the house is accurate. When your home is underinsured, a major claim can be devastating. Most of us cannot afford to be underinsured should a tragic loss occur to our home or vehicle. Start the year right by reviewing these tips to make sure your family home and autos are properly protected.

Review the declaration pages for accuracy; do not rely on verbal confirmations. Make sure your zip code and the year of construction are correct as they directly affect your premium and replacement value.
Educate yourself about the various discounts offered for alarm systems, proximity to a fire station, discounts for a good student (driver), college education, mature driver, and vehicle safety features. Your residence history and length of employment may also impact your rates.
Honestly assess and report the use of your vehicle for business and/or personal use. When used for business, your auto insurance must be classified as such. While this may increase your premium, it protects you from having a claim denied for improper classification.
Don't base your decision solely on price. Make sure that the insurance company delivers the level of service you expect. Ask the company about their claims handling process, and if there are local representatives for you to contact or only a centralized 800-number.
Take into account where you live and drive which affects the amount of bodily injury or property damage coverage you need.
Consider other special benefits the insurance company offers (free roadside assistance, car rental, discounts for the maintenance of your vehicle or home, safety courses for drivers, etc.).

A periodic review of your auto and home insurance coverage may take a little time; however, your prized possessions deserve the right protection.

The AIA Trust has selected Liberty Mutual's Group Savings Plus� program which offers eligible AIA members additional discounts on automobile and homeowners insurance. For a free, no-obligation quote, call 1-800-281-1329 or visit http://www.libertymutual.com/lm/aiatrust.

Value Analysis — Meeting Client Needs or Creating Risk?

Value analysis - or value engineering, value methodology or value planning - whatever it is called, the effort can assist in achieving client satisfaction. Or, it can create an unmanageable risk for the architect.

The analysis of value is intrinsic to the design process. Architects evaluate materials and systems as part of the process of responding to the needs of the client. The resultant design is really a series of recommendations to the client. And those recommendations address constructability, program requirements and life cycle costs, including operational and maintenance expenses.

Generating alternatives to produce the greatest worth for the client often takes skill sets beyond those of architecture firms. It is best to use a team approach that incorporates value and constructability consultants with the architect-of-record. When used properly, value analysis increases the return on investment and creates greater overall project value.

Assessing Functional Alternatives
An organized effort focused on achieving the lowest life-cycle costs consistent with required performance, reliability, quality and aesthetics is the basis of value analysis. This organized effort should acknowledge that the participation of the design team will result in additional time and liability exposure, and the professional service fee should be increased accordingly.

Usually, the best results are achieved when value analysis is begun early in the design process. Beginning at 25 to 40 percent completion of the design phase, value analysis can refine the design parameters. Initial and long-term costs, as well as construction costs, can decrease through more cost efficient materials and by reducing the time of construction, increasing the client's profitable use of the facility.

Avoiding the Cost Cutting Mentality
Mere cost cutting does not analyze true value. Cost cutting that results in a subsequent loss of quality and functionality does not provide essential function at the lowest overall cost. While most value analysis ideas involve some compromise on quality, performance, quality and cost must be weighed against each other before agreeing on changes. If the solution is developed early enough in the design process, the overall benefit to the client will be greater.

CNA/Schinnerer studies have shown that changes-whether to ease the construction process or to reduce the cost of materials or systems-made after the design development phase have a higher likelihood of generating a professional liability claim. While such changes may save immediate costs, later problems can lead to client dissatisfaction and construction inadequacies, which can both lead to claims.

Achieving True Benefits
Reducing project construction costs, improving project schedules, and decreasing operation and maintenance costs are significant challenges. The first step is to make sure the client has a well-prepared budget and a clear program. Then the value analysis process, conducted early in the design process, can have positive results. Gaps in the client's program or insufficient funding can lead to significant problems during construction if not addressed up front.

But value analysis should not be a one-time effort. The design team must review and evaluate each proposal on the basis of project goals, technical considerations, implementation consequences, and both initial operations and life cycle cost savings. The design team also has the responsibility to defend quality to the client and to explain the downside of any value analysis ideas. A client must be able to express informed consent when deciding on design team recommendations.

All stakeholders in a construction project must understand the procedures and timing of value analysis if the process is to achieve a true benefit rather than illusory savings.

Your comments on this subject are welcomed. We will share them with AIA's Knowledge Communities. By stimulating dialogue on this subject, we will work to increase the awareness of the AIA membership on this topic and may publish a future article that explores other aspects of this issue.

NEW YEAR... NEW PROGRAM... NEW OFFERS

The new AIA Trust 10-Year Level Term Life Plan is now a year old and proving to be a popular product. In the new year, the Trust will be making special offers of the 10-Year Term Life Plan to various groups of members.

The 10-Year Term Life Plan is available in all states and Canada to you as an AIA member under age 60. You may apply for up to $1,000,000 of coverage for yourself and your spouse. Once coverage is issued you may retain the policy until age 70.

Volume discounts apply at the $250,000, $500,000 and $1,000,000 benefit levels. A "Living Benefit" is included which will pre-pay 50% of the benefit amount if diagnosed with a terminal illness. This benefit will help the member and family financially when life insurance proceeds are most needed.

There are three rating categories in the plan depending on the current status of your health at time of application. The rating classifications are: Preferred for those who have no health problems or past medical history; Select for members who may have pre-existing conditions or minor health problems; and Standard rates for smokers and applicants with more significant health issues.

Once coverage is approved, your premium will remain level for ten years. At the end of the initial ten-year period, your health will be again reviewed to determine which rating category applies to you based on your health history at that time. Once initially approved, however, no insured member may then be declined coverage after any ten-year period has elapsed.

SPECIAL OFFER FOR NEW MEMBERS
New AIA members receive $15,000 of Term Life insurance at no cost to them during their first year of membership. This year, each new member completing their first year of this coverage will now receive a special offer to convert the $15,000 to $100,000 of coverage - with no medical underwriting - by simply completing an EZ-application form.

SPECIAL OFFER TO MEMBERS UNDER AGE 45
A similar offer will be mailed to all members under age 45. A special introductory $100,000 coverage offer will be mailed in early 2004 to those members who do not currently have the AIA Term Life Plan and may now use the EZ-application with no medical underwriting.

YOUR EMPLOYEES ARE ALSO ELIGIBLE
The AIA Trust also offers a Term Life Plan available to your employees. Many firms are taking advantage of the competitive rates for their key employees. If an employee has been with your firm for at least three months and works 20 hours per week on average, he or she is eligible to apply for up to $100,000 of AIA Term Life coverage. In addition, a Waiver of Premium and Accelerated Death Benefits will be included.

Employees also may apply as individuals subject to medical underwriting, or if you employ ten or more employees and apply as a group, coverage is issued on a guaranteed basis up to $50,000 per person. For example, an employee under age 35 for $25,000 of coverage would cost only $30 per year. The same coverage at age 35 is only $39 per year. Double the coverage and double the cost.

Take advantage of this program to protect your family and your firm.

CALL THE AIA TRUST INSURANCE OFFICE AT 1-800-255-8215 for information or quotations on the new AIA 10-Year Term Life Plan for members or for the AIA Employee Plan. Please ask for AIA Member Customer Service.

Last Minute Retirement Plan Shopping

It's time again when your tax adviser tells you exactly how good or bad business was last year. If it's recommended that you establish a tax-deductible retirement plan for 2003, what can you do at this point? The October 1 and December 31 deadlines to adopt such retirement plans have passed.

You're in a pinch, so a Simplified Employee Pension (SEP) IRA is a quick solution. The SEP-IRA enrollment process is easy and nothing has to be filed with the IRS to establish it. For calendar year corporations with a March 15, 2004, tax-filing deadline, the employer must make SEP-IRA contributions by the due date of the company's income tax return, including extensions. The contributions are deductible for the 2003 tax year. Sole proprietors have until April 15, 2004, or to their tax filing extension deadline.

What if you have employees? You may want to look ahead to 2004 and also consider adopting a 401(k) plan. Here's why: a SEP allows you to contribute toward your own retirement however, you - as the employer - must also contribute on behalf of your eligible employees. Although the entire contribution is a deduction for your business, you make 100% of the contributions. The amounts allocated to your employees belong to them immediately, and always. If they leave, all retirement contributions go with the employee.

With a 401(k) plan, employees can make elective deferrals from their own pay, thereby reducing what the employer must contribute on their behalf. This is a highly visible employee benefit and, as a participant in the plan, you also take advantage of your own 401(k)-salary deferral.

Ordinarily, adopting two plans might be an expensive proposition, but at the AIA Members Retirement Program, your only start-up cost is a one-time $25 enrollment fee for each eligible employee to be enrolled in a plan. Our Retirement Program Specialists will answer your questions and even walk you through the forms. To find out more about the only Program endorsed by the AIA Trust, please call toll-free 1-800-523-1125 ext. 6654.

Improve Your Risk Management Skills: Attend a Half-Day Seminar

Each year, Victor O. Schinnerer & Company, Inc. presents regional risk management seminars open to all AIA members. Key Risk Management Processes in Project Delivery, a half-day seminar, is presented in the context of the project life cycle and the contractual responsibilities of the parties. You can stay current on issues critical to a successful professional practice, earn health/safety/ welfare-related continuing education credits, and be finished before lunch.

The cost is only $125 if you register online: https://riskmgmt.datahiveonline.com by credit card or $135 to mail or fax your registration. You can also fax a request for more information to the Schinnerer Risk Management Department at 301/951-5444.

Under the AIA/CES program, this seminar is accredited for 3.5 Learning Unit Hours, which are health/safety/welfare-related and reported directly to the AIA. If you are insured with the Commended Program, attendance can help your firm earn premium credits. A 4% premium credit is available to qualified firms that have acceptable loss experience and place a special emphasis on loss prevention and quality control measures, such as attendance at Schinnerer loss prevention seminars and use of standard AIA contracts.

Your registration fee includes copies of the seminar slide pr