As most of you know, one of the many advantages of our Genesis Liability policy is that it includes administrative errors and omissions coverage that provides professional liability coverage. In fact, we have already done an Advantage article that discussed this coverage in some detail. In response to member inquiries, we thought we would quickly review the exclusion that applies to professional services. Our comments in this article primarily deal with exclusion as it would apply to Architect and Engineering firms, however most of it would also apply to Law firms.
Our policy specifically excludes:
“Any liability arising out of the rendering of professional services or the omission thereof by any lawyer, architect or engineer for which a fee is tendered for compensation or remuneration for such services.
This exclusion shall not apply to the provision of the Insured’s normal services involving but not limited to, the granting of plans, checking of plans, development permits or construction permits."
In a nutshell:
1) Engineering or Law firms that a municipality has hired/contracted to do specific work/projects for the municipality are NOT covered under the general liability policy, section two – administrative errors and omissions. For example, should a municipality contract the services of an architectural, engineering or law firm and later an action is commenced alleging an error or omission of professional services, our policy will NOT provide coverage for defense or liability. This is largely the reason why you should contemplate and determine the limit of liability that you will require each professional to provide in any given case. In the case of architects and engineering firms, mostly, we would use the project value and the nature of the project as guidelines when assisting our members in determining what this limit should be. However, given the cost (to the engineer) of E & O liability insurance for anything in excess of $2m, $5m or perhaps $10m, it often boils down to discussing this with the professional and arriving at a number that appears to be a reasonable expense for the coverage involved.
2) Municipal employees who are hired as an architect, engineer or lawyer by the municipality ARE covered while acting within the scope of their (employed) duties for the municipality because they are not deemed to be “rendering a professional service for which a fee is tendered”.
3) However, if these same employees are moonlighting and offering their services as a lawyer, architect or engineer outside of their employ with the municipality, then they are NOT covered by our policy. Our policy only covers employees while acting within the scope of their duties for the municipality.
Also, please remember that E & O coverage is “Claims Made” not “Per Occurrence” so the policy that will respond is the policy that is in effect when the/a claim is brought forward, not the policy that was in effect when the incident occurred.
For architect and engineering firms, the standard Self Insured Retention or most common deductible range if there is one, is $2,500 to $25,000 for most of the firms in Alberta. The very large firms would have much higher retentions or deductibles.
A self-insured retention or deductible works the same way for E & O insurance as it does for other types of insurance, i.e. there is usually a minimum deductible that an insurer requires, and then should an insured choose/request a deductible that is higher than the minimum, they may receive a possible premium credit. Many contracts will contain a clause that sets a maximum retention or deductible limit.
There is not really a “standard retention or deductible” for professional firms, as each company will have its own philosophy with respect to the “best” levels for them. In addition, different insurance companies may have different minimum retention or deductible levels that they require for a particular professional firm because individual claims histories may come into play. If someone were to ask us to come up with a retention or deductible limit that is more common for liability limits of $1m, $2m & $5m, it would probably range from a low of $ 2,500 with possible discounts being allowed for higher deductibles such as $5,000 & $10,000, or higher.
What happens to policy payouts if the company doesn’t have enough to cover the SIR or deductible will be slightly different if there is a SIR or a deductible. Please see the following explanation below which comes from IRMI Risk & Insurance Glossary:
Self-insured retention (SIR)
A dollar amount specified in a liability insurance policy that must be paid by the insured before the insurance policy will respond to a loss. Thus, under a policy written with a SIR provision, the insured (rather than the insurer) would pay defense and/or indemnity costs associated with a claim until the SIR limit was reached. After that point, the insurer would make any additional payments for defense and indemnity that were covered by the policy.
In contrast, under a policy written with a deductible provision, the insurer would pay the defense and indemnity costs associated with a claim on the insured's behalf and then seek reimbursement of the deductible payment from the insured. For example, assume that two policies are identical, except for the fact that Policy A is written with a $25,000 deductible, while Policy B contains a $25,000 SIR. Also assume that defense and indemnity payments for a given claim total $100,000. In the event of a claim under Policy A, the insurer would pay the $100,000 in defense and indemnity costs that were incurred. After the claim is concluded, the insurer will bill the insured for the $25,000 in payments made on the insured's behalf. In the event of a claim under Policy B, the insured will pay the first $25,000 of defense/indemnity costs, after which, the insurer will make the additional $75,000 in defense and indemnity payments on the insured's behalf.””
If you have any questions whatsoever please do not hesitate to contact us for advice.