The Covid-19 pandemic has changed nearly everything in our lives and in architectural practice. There are some resulting insurance issues that are important to consider and address.
Taking Charge of Your Insurance Premiums
Professional liability policies are priced as a percentage of revenue. Given the current situation which may result in less business for your architecture firm, if you can show expected reduced revenue from your original estimates, then you should approach your agent to request re-pricing of your policy to reflect the lower revenue projections – and thereby, lower your premium payment. It’s important to note that professional liability policies are largely charged based on a firm’s prior exposure so the effects for the future would likely be seen next year as the full 2020 picture is captured on the renewal application. Architects must make the request themselves because these policies are generally not subject to an audit of revenue at the end of the policy period.
There is guidance and requests for flexibility from states around payment relief and extending the time for a firm to pay its premium, including a moratorium on cancellations for nonpayment of premium. For example, this is what CNA is now offering its insureds. Many insurers will try to work with their clients on individual requests to best address their issues, such as expanding the options for extended payment plans or working through the cash flow concerns.
In addition, there may be another way for an architect to lower premium payments – if there have been staff cutbacks of salary, hours, and/or employees. Architects in this situation can make a similar request of their Workers Compensation insurers whose premium is a function of payroll. Those policies are subject to a payroll audit at the end of a policy period, so architects should get returned premium when the payroll is overstated.
Some personal auto insurers are also returning premium payments back to their insureds in recognition of the greatly reduced driving exposure during this crisis. However, these offers have not yet been forthcoming from commercial insurers writing auto liability insurance for business accounts – but it would be worthwhile to question those premiums as well.
In regards to reducing onerous insurance requirements in contracts that could save money for architects, in the public sector it’s very difficult to change such requirements because of purchasing department rules. Generally, such discussions of requirements must be done well ahead of time before they are written into the specifications. Your broker and/or insurer should be able to provide technical assistance in amending insurance language in these agreements.
Property and Business Interruption Coverage
It’s important not to misunderstand what your Business Owners policy covers. Unless specifically stated otherwise, any “business interruption” coverage applies only if there is a “covered loss” – which is property damage to your own property. In order to collect business interruption, there must be physical damage to your owned or leased property. The general liability (GL) and the business interruption (BI) coverages are completely separate. One coverage is related to property damage and related (BI) and the other is third-party liability (GL). They may both be part of a business owners package policy but one does not trigger the other. GL would respond in a situation where a client might become infected after exposure to your office or employees and would then sue your firm for bodily injury. Business interruption would pay your firm for lost revenue due to covered physical damage to your office – but it will not cover your firm for loss of business due to the Covid-19 virus or any other pandemic.
There may be lawsuits for years over these type claims. Some state Insurance Commissioners are attempting to force insurers to pay such BI claims. Other states are trying to pass legislation also mandating coverage. Another approach may be legislation that establishes a federal backstop for such claims similar to the Terrorism Risk and Insurance Act (TRIA) that came out of the 9/11 attacks. TRIA provides federal reinsurance for terrorism losses so that the coverage can be made available to all insureds when there would otherwise not be any insurance available. Flood insurance is another example where the federal government has provided protection in flood prone areas where insurers would not provide enough coverage for the exposures presented.