Independent architects running their own firms need to buy professional liability insurance. In the course of work, one may make mistakes that can attract lawsuits and jeopardize their financial standing. Professional liability insurance protects professionals such as architects from legal costs and damages resulting from negligent acts such as human error and non-compliance. Below are some factors that you should consider before investing in liability insurance.
Choice of Insurance Company
Although most insurance firms offer professional liability policies, it's a good idea to choose one specializing in liability policies for professionals such as architects, engineers, and contractors. Such firms are more likely to offer competitive rates as compared to general insurers. Additionally, they are more flexible when it comes to tweaking policies to meet your individual needs.
Occurrence vs. Claims-Made Coverage
Liability insurance can be categorized into occurrence coverage and claims-made coverage.
Occurrence Policy: This policy covers damages resulting from incidents that occurred during the insured period, regardless of when one files the claim. Thus, as long as the loss happened while the policy was active, you are covered. For example, you engage in a design project for a building. Unfortunately, you overlook certain compliance issues, and your client suffers a loss. As long as non-compliance occurred during your policy term, your insurer will cover the damages, even if you file the claim after the policy's expiry.
Claims-Made Policy: This policy covers claims made during the policy period. Therefore, if a claim is made before the inception or after the expiry of the policy, it won't be covered. Claims-made policies have two elements:
- Retroactive date: This is a date in the past that the insurer has agreed to cover you. For example, your policy starts in February 2021, and it has a November 2020 retroactive date. You file a claim in March 2021 for an incident that occurred in December 2020. Your insurer will cover the costs as the incident happened after the retroactive date.
- Extended reporting period (ERP): This feature allows you to report claims within a specified period after your policy's expiry. If the policy mentioned above expires in February 2022 and has an ERP of April 2022, all claims within the ERP window will be covered.
Independent architects can choose between occurrence and clams-made policies. However, occurrence policies are costly because of the long claims period.
Extent of Coverage
Professional liability insurance policies can range anywhere from a few thousand dollars to millions of dollars. If you get inadequate coverage, you may have to pay out-of-pocket for damages exceeding your coverage. Thus, when choosing a policy, consider the level of risk, size of projects, and the projected annual revenue. For example, an architect dealing with small design projects won't need as much coverage as one handling commercial jobs.
Professional liability insurance protects you from suffering financial losses due to damages resulting from error and negligence. An insurance broker can help you set up a suitable policy.