Risk Management for Architects and Engineers Part 6: Professional Liability Insurance Exclusions

The past several posts have focused on risk management for design professionals. Today, I plan to illustrate another reason why you should beware of contractually undertaking a higher duty, namely professional liability insurance exclusions.

Professional liability insurance carriers generally agree to underwrite losses incurred by their insureds due to acts or omissions that fall below the “standard of care” for such professionals. But which standard is that? It’s the common law standard of care (see the September 7, 2015 post).

Why does this matter? In some of my earlier posts, I discussed how design professionals can elevate their standard of care, and may make express warranties by agreeing to meet specified performance criteria. By agreeing to meet certain performance criteria or agreeing to an elevated standard of care, the design professional may have contractually undertaken a higher duty than would otherwise be imposed upon him/her as a matter of law. And if so, the design professional may become uninsurable because, generally speaking, a professional liability policy will only pay those claims arising from negligent performance (i.e., conduct falling below the common law standard of care) of “professional services.” For instance, the typical design professional’s errors and omissions policy generally excludes coverage for an actual or alleged breach of warranty or guarantee, and for an actual or alleged breach of contract. And besides running the risk of being uninsurable, the design professional is also at risk for being liable for breach of contract at his/her expense, even in the absence of negligence.

Think twice before elevating the standard of care or otherwise agreeing to meet certain performance criteria. And remember that it is always a good idea to have your insurer and lawyer review your contract, particularly the indemnification and standard of care provisions.

Alabama attorney and professional engineer Jacob W. Hill practices construction law, representing general contractors, subcontractors, material suppliers, developers, architects, engineers, and other parties to construction and development projects. Contact Jacob Hill for more information or a consultation regarding your project.