Risk Management for Architects and Engineers Part 7: Professional Liability Insurance Exclusions

Design professionals should not agree to meet certain performance criteria or otherwise impose upon themselves an elevated standard of care, particularly in light of numerous professional liability insurance exclusions. But the exclusions don’t end there. On October 19, 2015, I discussed, in very general terms, the varying breadth of indemnification provisions. This post is designed to further illustrate why design professionals should beware of contractually assuming broad indemnification obligations, particularly in light of the typical professional liability policy.

The contractual liability exclusion is another common exclusion design professionals should be aware of. A professional liability insurance policy, like a commercial general liability policy, will generally contain a contractual liability exclusion such as the following: “The Insurer is not liable to pay damages or claims expenses arising out of or alleged liability assumed under any contract or agreement unless that liability would have been imposed on the Insured by operation of law.” In other words, if liability would not have been imposed on the design professional in the absence of the indemnification agreement, that exclusion could operate to bar coverage.

Generally, the design professional is liable for its acts and omissions, and for that of its agents. Unfortunately for some design professionals, they sign indemnification agreements greatly expanding their obligations by, for example, agreeing to indemnify the client for his/her/its own acts or omissions. And by agreeing to such a broad indemnification provision, the design professional has agreed to be liable for the acts and/or omissions of someone (or some entity) that the design professional otherwise would not have been liable for in the absence of that indemnification agreement. And having done so, the design professional’s agreement falls squarely within the operation of the exclusion should a loss contemplated by the provision be incurred, thereby causing the design professional to bear the loss resulting from such indemnification obligations.

Simply put, always consult with your insurer and lawyer, and read your professional services agreement with the exclusions in mind. After all, it is better to consult with your carrier on the front-end, rather than submit a claim only to find out that your claim falls within the operation of an exclusion.

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.