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Don’t Jeopardize Your Coverage

Timothy R. Hughes, Esq.
Hughes & Associates, P.L.L.C.

            If you have made the decision to spend the money and purchase insurance, the last thing you want to do is jeopardize that insurance coverage.  Insurance coverage for architects is extremely expensive and you want to get what you pay for.  There are a number of major points you want to religiously adhere to in order to avoid eliminating your insurance coverage.

1.  Notify Your Carrier

If you are on notice of a claim, you must promptly notify your carrier of the claim.  In the event you fail to tell your carrier of a potential claim, the carrier may deny coverage to indemnify or defend the claim.

The reason for this provision is simple.  The carrier should be entitled to timely investigate, evaluate and defend a claim.  When you fail to notify the carrier, you take away the carrier’s ability to set a case up properly for defense.  You may also eliminate the chance to settle a case early and cheaply.

It should be noted that the question of when you are aware of a potential claim can get quite murky.  It is best to place your carrier on notice early.  This is particularly true given that many insurance policies include provisions whereby a carrier can step in for free to help to try and avoid claims before they even fully erupt.

2.   Accurately Fill Out the Insurance Application

Carriers issue insurance based upon information you provide in your insurance application and related documentation.  If that information is inaccurate, incomplete, or deceptive, the carrier can argue that the coverage was procured under false pretenses.  This coverage defense is relatively easy for a carrier to interpose under the right set of facts.  It is also a problem which is very easy to avoid.

3.  Beware of Warranty Language

The primary insurance coverage for architects is an “errors and omissions” policy.  This policy covers damages which flow from errors or omissions of the architect, or simply stated negligence.

The law generally states that an architect is governed by the standard of care and does not warrant or guarantee perfection.  Where you have agreed to contractual warranties, those types of warranties are often expressly excluded from coverage under errors and omissions policies.  Thus, you need to be very careful regarding language which purports to warrant your work.

4.  Beware of Construction Cost Contract Language

Like warranties of performance, errors and omissions policies often exclude coverage for guarantees regarding construction costs on a project.  Under the AIA contracts, architects provide estimates but do not guarantee ultimate construction costs on a job.

If you do provide a guarantee of construction costs, this not only creates a huge risk of liability, but it also is likely uncovered exposure.  You should avoid these terms at all costs.

5.  Beware of Indemnification Clauses

You should probably be seeing a trend at this point … architects should be extremely careful with signing indemnification clauses.  Like the other contract terms referenced above, indemnification provisions can expand liability beyond the typical scope of negligence claims permitted under basic common law.  Where liability is expanded beyond that base envelope, your carrier may not be required to pay those damages.

6.  Finally, Avoid Elevated Standards of Care

While more scarce than some of the other provisions, some owners attempt to insert contract language which creates an elevated standard of care.  Under the right circumstances, such an elevated standard of care may create coverage problems for the same reasons listed above.

Conclusion

Many coverage problems are easily avoided.  If you avoid the situations listed above, you will eliminate many of the situations which create coverage problems for architects.