For architects, engineers and other design professionals, few things are as dangerous as being uninsured. Mistakes and accidents happen, so insurance is a must. Yet just because you’ve got insurance doesn’t mean you’re out of the woods. Being underinsured can be almost as dangerous as being uninsured.
Here’s what to know and how you can avoid being underinsured.
What Being Underinsured Means
Professional liability insurance exists to cover the cost of any claims that are brought against you for the work you do as a design professional. This can include legal defense costs as well as settlements and judgements. But it’s important to understand that insurance policies have coverage limits that can be exhausted by high-dollar legal costs.
Being underinsured means that the dollar limits of coverage available under your insurance policy are lower than the likely cost of a claim. Unfortunately, whatever costs aren’t covered by your insurance policy fall under the responsibility of the design professional and their business entity. The main risk of being underinsured is that you are exposing yourself to personal risk.
How Legal Costs Can Erode Limits
Finding yourself in a situation where you are underinsured is often unintentional. No professional wants to risk their career by choosing the wrong policy limits. The problem is that it is often hard to know just how much a claim will cost before it happens.
Claims of negligence against architects, engineers and other design professionals can be incredibly expensive to defend against. If you are sued and the claim survives the initial stages in the courts, defense costs soar. Discovery routinely involves multiple parties, thousands of pages of documentation and hundreds of hours of attorney fees. There are also other costs to consider, such as the hiring of experts to defend your work.
These defense costs commonly reach six figures before a settlement can be reached or a judgement can be made. Policies with limits of $100,000 or $250,000 may be eroded or exhausted by these defense costs, leaving little or nothing available to the designer in the event of a settlement or judgement.
Besides these defense costs, you also have to take into account the likelihood of a high settlement or judgement cost if you lose the case. Remedying design errors can be very expensive, since part or all of a structure may have to be demolished and rebuilt. In the event of a serious claim where you are found to be negligent, your insurance may be exhausted and the parties will hold you responsible for the shortfall.
It’s important to understand that insurance policies don’t offer one pool of money for defense costs and another for settlements and judgements. Each claim will have its own limit, which is said to be an eroding limit, that can be exhausted by whatever fees accrue under that claim.
Why It’s Important to Understand Your Limits
Before you take on your next project, it’s important to understand the limits of your insurance policy, so that you don’t find yourself underinsured. Most policies are described as having two limits, a per-claim or per-occurrence limit and an aggregate limit. These two insurance terms are key:
- Your per-claim or per-occurrence limit is the maximum amount the insurer will pay for a single covered claim. With some policies, you can choose your own limit, with higher limits resulting in a more expensive policy, but better coverage that helps reduce your risk of being underinsured.
- Your aggregate limit is the maximum amount the insurer will pay for all claims under the policy during the policy period, which is usually a period of a year. Many insurers also offer a choice of aggregate limits. It’s important to note that you can also become underinsured due to having multiple costly claims filed against you during the same policy period. A policy with a higher aggregate limit will cost more but provide better protection against this risk.
Some insurers also offer shared limits that are shared between a group of insureds. This is another risk that can lead to being underinsured if other parties in your group have faced claims under a policy with shared limits during the same policy period. But with insurance from Lockton Affinity, this isn’t a risk you’ll have to face, since we offer individual limits, so you always have access to your full policy limits.
As a design professional, being underinsured is almost as risky as being uninsured. Adequate insurance protection can help you avoid the worst outcomes. Coverage to handle the cost of a robust defense, settlement and liability claims is a must.
At Lockton Affinity, we understand the needs of design professionals like you. Our insurance experts can help ensure you have the coverage and limits that fit your business needs. You’ll also benefit from risk management resources that can help reduce your risk of a claim, along with competitive coverage and prices and best-in-class customer service.
Receive an indication of what our coverage will look like for your business today by visiting LocktonAffinityA-E.com or call (888) 425-7011.