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A myth exists that architectural and engineering (A&E) firms should not report seemingly minor issues to their insurers. Firms may fear that if they over-report, their professional liability insurance premiums will increase. Firms may be concerned that such reports will complicate their renewals. In reality, carriers prefer an early notification regarding potential claims. Most insurers have a “supplementary payments” section in their policies, which offers “pre-claims assistance.” This provision, when properly utilized, can save your firm money and drive favorable resolution of pre-claim matters.
Insurers define a claim as a “demand for money or services.” Reporting a matter as a pre-claim incident involves alerting your carrier to a potential claim. The insurer’s claims team then supplies guidance and practical support to help your A&E firm mitigate the risk and avoid a claim. Proactive reporting and early intervention drive positive outcomes for both the carrier and your firm.
Additionally, many carriers will devote financial resources to firms in the pre-claim phase without eroding your firm’s deductible or policy limit. For example, the insurer may retain an attorney and/or an expert to assist. These experts will evaluate the underlying facts and circumstances and propose a remedial solution — on their dime, not yours. Further, any resources your insurer spends in the pre-claim process will not count against your loss ratio. This means successful pre-claims can work in your firm’s favor with respect to future professional liability insurance premiums.
A&E firms face many circumstances that could signal or lead to a potential claim. Below are several examples of common fact patterns that might give rise to the opening of a pre-claim file:
Knowing the details of your policy can help you identify scenarios that could lead to a claim. You can prevent financial losses and project delays by spotting issues early and alerting your carrier to potential claims.
Even if an issue falls outside of your firm’s contracted scope of services or seems inconsequential at the time, it remains best practice to report those matters to your insurance carriers. Without reporting matters during the pre-claims phase, your firm may lose the ability to have a third-party expert make remedial recommendations to the project owner. Further, coverage issues may arise by failing to report in a timely manner.
Many firms have longstanding client relationships and pride themselves on being able to assist their clients with resolution of problems. Unfortunately, in today’s litigious society, it is best to err on the side of caution. Before you admit fault, begin problem solving, or offer remedial solutions, seek guidance from your insurer and its experienced claims professionals. A well-intended action can result in a claim or lead to a less preferable resolution.
Your firm’s project-level professionals need to be aware of the scenarios where a pre-claim is advisable and what steps to take. Establish a written procedure with respect to reporting claims, which addresses the following:
Establish a standardized reporting process and run “what if” scenarios to train your team with respect to these new protocols. Consider inviting your insurer and/or insurance broker to share professional liability claims examples, discuss the pre-claim process, and answer questions.
Leading professional liability insurers reward early and proactive claims reporting practices. Establishing open lines of communication with your carrier can lead to the avoidance of claims and bring financial benefits to your firm.
If anyone at your design firm is aware of a circumstance that makes a claim reasonably foreseeable, contact your carrier. Providing as much detail as possible helps your insurer allocate appropriate resources to resolve the issue.
Even the most diligent A&E firms experience circumstances that can lead to lawsuits. Carriers understand that almost no construction project is without issues. Look at your insurer as a teammate. They have a vested interest in helping your firm avoid or mitigate a claim.
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About the author
Kevin McGrath is a Vice President at Risk Strategies Company, where he provides full-spectrum risk management solutions to his clients. Prior to joining Risk Strategies Company, he specialized in professional liability as a practicing attorney and on behalf of insurance carriers.