The insurance marketplace is very open to architects and engineers (A&E) professional liability coverage. According to Christian T. Hamlin, RPLU, broker – professional & management lines at Burns & Wilcox, “Volatility in the market seems to be inviting new programs and fresh faces to the field every quarter. This is not necessarily a good thing, as a specialist broker’s job is to place risks with stable, long-term programs whenever possible.”

Michelle A. Duffett, executive vice president of Insight Insurance Services, Inc., adds, “There are about 40 companies, including Lloyd’s syndicates, that offer this line of coverage. Major writers include CNA, through Victor O. Schinnerer; XL; Argo Group, through Insight Insurance Services; HCC, through RA&MCO Insurance Services, and Lexington.”

Tony Armor, commercial underwriter at Roush Insurance Services, Inc., includes Chubb, Evanston Insurance Company, James River Insurance Company, US Liability, and Western World Insurance Company on his list of carriers that write this coverage. He comments that, while coverage is written with both admitted and nonadmitted markets, most of the accounts he writes are on nonadmitted paper. He adds, “Some admitted carriers' pricing may be lower but they have little flexibility with regard to policy forms, endorsements and coverage enhancements."

There are reasons a company chooses to write on nonadmitted paper. John Clarke, senior vice president of James River Insurance Company, explains that his company writes only on a nonadmitted basis. “Factors that typically influence whether business is written on an admitted versus nonadmitted basis are the nature of projects, professional disciplines, the state or venue, and the account’s loss history. For example, a firm engaged in structural engineering for high-end homes in Florida will likely find very few carriers willing to entertain writing it on an admitted basis.” Mr. Hamlin explains that the fact that more A&E professional liability is written on a nonadmitted basis in California speaks to both the litigious nature of the environment and to pricing volatility exacerbated by the recession.

According to Kate Frownfelter, senior vice president and program manager, construction industry group at Victor O. Schinnerer & Co., Inc., the most challenging operations to underwrite are the structural classes of engineering because “By the time a structural issue is discovered, it’s usually necessary to do a tear-out and rebuild, and there is a fundamental problem with the foundation or the overall structure.” However, she adds, “For both condominium projects and single-family homes, claims are being generated as a result of the quality of craftsmanship as well as design."

Ms. Duffett explains that architects tend to have the highest frequency while structural engineers have the highest severity. However, because of the varied natures of the disciplines within the class and the changes in frequency and severity potential based on the types of projects each firm undertakes, it is very difficult to succinctly break down the professional exposures.

Looking forward, Mr. Hamlin envisions a “wave of eco-litigation stemming from many factors, among which are unprepared corporations, new areas of specialized consulting, and new and more extensive government regulation. The booming, yet extremely young, ‘green’ industry has created a niche for new areas of specialized ‘green’ consultants, whose services bring them closer, if only vicariously, to sustaining incidental pollution claims than, for example, an interior designer.”

It is very important to consider the intertwining relationships in any building project. According to Mr. Armor, “Firms can be pulled into claims situations when they fail to verify that sub-consultants or subcontractors are property insured and when they do not thoroughly review contract language prior to signing.” Ms. Frownfelter adds, “One of the greatest challenges of this economy is that some firms have been forced to go without insurance. This is not only a primary issue but also a vicarious one. If one or more of the sub-consultants engaged for a project is uninsured, the primary firm ends up with all of the liability exposure.”

Our experts point out a number of important coverage considerations. General liability and professional liability coverage should be coordinated so that the insured is not left with a gap in coverage when the professional liability insurer denies coverage due to the claim being bodily injury/property damage while the general liability insurer denies coverage because the claim is professional. Contingent bodily injury is one way to coordinate coverage.

First dollar defense coverage and defense in addition to limits are very desirable. Environmental exclusions should be reviewed carefully. Mold, asbestos and lead exclusions can be bought back in many cases. Ms. Duffett points out, “A design firm should not accept a policy with a mold exclusion."

Ms. Frownfelter explains that Schinnerer’s policies written through CNA generaly do not have to be endorsed to broaden coverage. “We’ve made our definition both broad and contemporary, and we intend that the definition grow with the profession. Our definition encompasses both the kinds of services our insured now provides as well as those it intends to provide. We broaden our definition instead of endorsing the policy."

Mr. Clarke states that limits available “depend on the size of the firm and the nature of projects. Limits up to $5 million for smaller firms are typical. Large firms with large projects may be required to carry higher limits.”

The experts agree that rates remain fairly steady but that premiums are going down because they are based on revenues and, with the economic downturn, premiums naturally fall with the revenue. Ms. Frownfelter explains a recent change. “We have historically priced and written design professional liability based on the insured’s prior fiscal year. We have changed our billing basis and are now underwriting based on the last 12 rolling months. As a result, many firms have seen a premium decrease."

Another result of the economic downturn is abandoned projects. According to Mr. Armor, “In today’s economic climate, many projects are being delayed or terminated, exposing A&E professionals to more risk when projects are put on hold or abandoned. Lenders are less willing to extend credit, and owners are likely to cut their losses and move on to other things when funds are no longer available.”

Our experts do not identify any particular geographic problems but make two important observations. Mr. Clarke points out, “Claims activity is up sharply in areas that saw a tremendous boom in residential building, and especially residential condominiums.” Ms. Frownfelter observes, “Some jurisdictions are challenging because their base rates are so high and/or because of poor experience. These include New York, New Jersey, Florida, Texas, Nevada and some parts of California.

Mr. Hamlin adds a word of caution and of confidence in our industry. “The A&E professional liability field will continue to adapt to current real estate market conditions, new construction demands, and wide-sweeping environmental regulation reform. As such, carriers writing these firms will have to continue making adjustments to offer the broadest coverage possible at competitive rates, or risk losing their renewal base. Brokers must remain vigilant and attuned to new environmental regulations that will create additional, possible unforeseen gaps in coverage.“