s6_engineers professional liability what is it how does it work what does it cover_ltc2013
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2013
Louisiana TransportationConference
Professional Liability:
Everything You Wanted to Know,
but Were Afraid to AskFebruary 18, 2013
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Professional LiabilityInsurance?
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What does Professional Liability cover?
Pays others for damages which you are legallyliable to pay as a result ofnegligent acts,
errors or omissions in the performance of your
professional services or those you are legally
liable for.
property damage
bodily injury
economic loss
legal expenses
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Professional vs. General Liability
Professional: mistakes in plans or
specifications, surveying errors - failure to
meet normal standard of care.
General: non-professional activities inside and
outside office. (e.g... client slips and falls in
firm office, defamation, libel, slander)
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How does it work?
claims made against you and reported to
the insurance company during the policy
term, and any extended reporting periodsubject to a retroactive date on your policy.
Claims-made and reported
Retroactive Date
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CLAIMS MADE POLICY
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
FirmEstablished
Firm Purchases
Insurance
Policy
Expires
NO COVERAGE NO COVERAGECOVERAGE
Date Allegedly Faulty
Service Rendered
Date Claim is Made
and Reported to Carrier
Coverage Coverage would apply, subject to limits
and deductible for Policy Year 3.
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CLAIMS MADE POLICY
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
FirmEstablished
Firm Purchases
Insurance
Policy
Expires
NO COVERAGE NO COVERAGECOVERAGE
Date Allegedly Faulty
Service Rendered
Date Claim is Made
and Reported to Carrier
NO Coverage Claim was made for an act performed
prior to the Retroactive Date in the policy.
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CLAIMS MADE POLICY
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
FirmEstablished
Firm Purchases
Insurance
Policy
Expires
NO COVERAGE NO COVERAGECOVERAGE
Date Allegedly Faulty
Service Rendered
Date Claim is Made
and Reported to Carrier
NO Coverage Claims made policies must be in
effect when claim is made to afford coverage.
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What risks are not covered?
claims that arise from services performed
prior to the retroactive date
claims brought after the policy term
claims in excess of policy limits
claims from non-professional services
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What are your coverage options?
Coverage limits
per claim & annual aggregate (1M/1M)
split limit options (1M/2M)
Deductibles
per claim & annual aggregate
optional (DOD, SE)
Expense inside limits
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Legal concepts:
Tort Law Negligence
Preponderance of the evidence
Contractual Liability
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Now for the exciting stuff
Professional Liability
Key Policy Language & Conditions
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Professional Liability : Insuring Agreement
A. COVERAGE A
Professional Liability
The Company agrees to pay on behalf of the INSURED all sums in excessof the Deductible, subject to the Policy Limits of Liability, that theINSURED becomes legally obligated to pay as DAMAGES and/orCLAIMEXPENSES as a result of any CLAIM(S) first made against theINSURED during a POLICY YEAR and first reported to the Company, inwriting, during that POLICY YEAR or within sixty (60) days after the endof that POLICY YEAR, provided that:
1. The CLAIM(S) arises out of aWRONGFUL ACT;
2. SuchWRONGFUL ACT was committed or alleged to have beencommitted on or after the Retroactive Date(s) stated in Item 6 of theDeclarations; and3. Prior to the Anniversary Date (Knowledge Date) stated in Item 7 of theDeclarations, none of the INSUREDs directors, officers, principals,partners or insurance managers knew or should have known that such
WRONGFUL ACT might give rise to a CLAIM(S).
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Claim
C. CLAIM means a demand received by the INSURED for money or services andthat alleges one or more of the following:
1. A WRONGFUL ACT arising from the performance of PROFESSIONALSERVICES;
2. POLLUTION CONDITIONS arising from the performance of CONTRACTINGSERVICES; or
3. A NETWORK SECURITY COMPROMISE.
A demand can take the form of, but is not limited to, lawsuits, petitions, arbitrationdemands, mediation requests or other alternative dispute resolution requestsserved on the INSURED.
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Things you must do!
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Claims:
Company Notification
A. In the event of a CLAIM(S), prompt written notice shall be given
by or for the INSURED to the Company and shall contain: particularssufficient to identify the INSURED; reasonably obtainableinformation with respect to the time, place and circumstancesthereof; and the names and addresses of available witnesses.
B. If a CLAIM(S) is made against the INSURED, the INSURED shallpromptly forward to the Company every demand, notice, summons,order or other process received by the INSURED or the INSUREDsrepresentative. This requirement continues throughout the life of theCLAIM(S).
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Claims:Early Reporting
C. If the INSURED becomes aware of a CIRCUMSTANCE(S) to which thisPolicy may apply and provides written notice to the Company during thePOLICY PERIOD containing details of:
1. The alleged WRONGFUL ACT(S), POLLUTION CONDITIONS orNETWORK SECURITY COMPROMISE(S);
2. The specific nature and extent of the injury or damage that has beensustained; and
3. How the INSURED first became aware of such CIRCUMSTANCE(S),
then any CLAIM(S) that may subsequently be made against the INSURED arising outof such reported CIRCUMSTANCE(S) shall be deemed to have been made on thedate first written notice of the CIRCUMSTANCE(S) was received by the Company.This right conferred upon the INSURED in this Paragraph shall terminate at the endof the POLICY PERIOD and shall not exist during the Automatic (30-60 days)Extended Reporting Period or Optional (1-5 years) Extended Reporting Period.
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Claims:
Early Reporting
B. LOSS PREVENTION ASSISTANCE
If the INSURED reports a CIRCUMSTANCE during a POLICY YEAR inaccordance with Section IX, NOTICE, Paragraph C, any costs or expensesthe Company incurs as a result of investigating or monitoring suchCIRCUMSTANCE will be paid for by the Company until such time aCLAIM(S) arising out of the reported CIRCUMSTANCE is made against theINSURED. The decision to incur any costs or expenses to monitor or
investigate a CIRCUMSTANCE shall be at the sole discretion of theCompany.
CIRCUMSTANCE means an event or occurrence from which the INSUREDreasonably expects that a CLAIM(S) could be made.
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You should not[cannot]ignore a problem
once you are aware of it.
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Things you must not do!
Admit fault
Make payments or expend money
Withhold consent to settle unreasonably
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Questions
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Dirty Words
Delivering What You Say You Can
Without Jeopardizing Your Liability
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The common faults of
American language are an
ambition of effect, a want of
simplicity, and a turgid abuseof terms.
James Fenimore Cooper
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The Problem With Words
600,000 word in the English language.
2,000 words used by average college grad. indaily conversations.
500 most commonly used words have morethan 14,000 meanings.
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The Problem With Words
Words are our basis for communication.
Majority of A/E claims result from, or are
greatly complicated by errors incommunications.
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Communication Issues
A primary factor in:
39% of claims count
29% of claims dollars
39%
Communication
Other Risk Drivers
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Communication Issues
Other
3%
Lack of procedures
to identify
conflicts, errors
and omissions 51%
Scope of services
not explained to
client
13%
Project issues and
potential disputes
not handled
correctly
17%
Regular progress
reports regarding
changes not
approved
1%
Lack of
documentation re:
changes in scope,
budget, etc.
9%
Project staff
not aware of
responsibilities
6%
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Promotional Materials
Contract Negotiation
Design and Specifications
Construction Administration
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Problem Words
Absolutes
Superlatives
Words of Promise
Words with multiple meanings and
interpretations
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Superlatives and Absolutes
Eliminate or Qualify
Highest quality
Most experienced
State of the Art Promissory words
assure, insure, always, never,....
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Multiple meanings(Specifications)
Equal, Equivalent, Essential,
Necessary, Required, Maximum,
Minimum, Furnish, Install, Provide,
Significant, Material.....
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Red Flag Words
all, always assure test complete
every ensure attest final
none, never insure periodic provide
any approve estimate install
only certify safe furnish
best, most warrant full expert
highest guarantee equal specialist
maximum inspect essential material
minimum administer necessary significantis, are supervise required
will, shall investigate equal Defend
must examine thorough
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Protective Measures
Choose your words carefully Define all criticalwords
Use Interpretation clause
Discuss and Document actions
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Contracts
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Contract not:
--The firm's own
--Reviewed by
counsel
--Based on
industry standard
8%
Lack of mediation
clause in client
agreements
4%
Scope of
construction
phase services
not employed
12%
Unclear and
inappropriate
scope of services
26%
Client-authored
agreements not
reviewed by senior
management
8%
Contract not in
place before work
began
8%
Deal-breakers in
contract
4%
Did not formallyevaluate project
and associated
risks before
contract signed
30%
Negotiation and Contract Issues
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Standard of Care
Bad language:
A/E represents and warrants that A/E has the
specialskill and expertprofessional competence
and experience to undertake the obligations, andshall meet the higheststandards of skill, prudence
and judgment in the performance of its services
under this agreement.
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Standard of Care
Proper language:
Services provided by the A/E under this
agreement will be performed in a manner
consistent with that degree of care and skillordinarily exercised by members of the same
profession currently practicing under similar
circumstances.
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Codes and Standards Compliance:
Bad Language
A/E states that it has taken allsteps necessary
to become familiar with the conditions whichcan affect the services and is familiar with and
shallat alltimes comply with allapplicable
laws, codes, rules and requirements of
governmental bodies and agencies.
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Certifications
Bad Language
I hereby certifythat I am a licensed
architect in the State of _______. I
further certifythe building is in strict
conformance with the plans and
specifications, and I hereby state that
the building is in compliance with alllaws, codes and ordinances.
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Certifications
Proper language:
I hereby certify that I am a licensed Engineer in theState of Louisiana . To the best of my knowledge,
information and belief, the project was constructed in
general conformance with the plans and specifications,
and in my professional opinion, is in compliance with
applicable laws, codes and ordinances in effect as of(date).
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Warrantees, Guarantees &
Certifications
all, always, never, shall, will, is, assure,
certify, attest,....
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Contractual Liability
Warranty vs. Negligence
Petition Allegations:
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Petition Allegations:
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Hold-harmless & Indemnity
The Design Professional agrees, to the fullest extent
permitted by law, to indemnify and hold the Client
harmless from damages and losses arising from the
negligent acts, errors or omissions of the Design
Professional in the performance of Professional
services under this Agreement, to the extent that the
Design Professional is responsible for such damages
and losses on a comparative basis of fault and
responsibility between the Design Professional andthe Client. The Design Professional is not obligated
to indemnify the Client for the Client's own
negligence.
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Construction Supervision
A/E shall supervise the construction and
related activities of the Contractor and shall
inspectthe work in progress to ensure the
project is moving forward in strict
accordance with the Contract Documents.
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Construction Observation
or Review
The A/E shall visit the site at appropriate
intervals during construction to becomegenerallyfamiliar with the progress and
quality of the contractors work and to
determine if the work is proceeding ingeneralaccordance with the contract
documents. (may wish to add disclaimer if scope is limited)
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Construction
Administration is not:
Inspect, Supervise, Control, Direct, .....
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Construction Observation
or Review
A/E not responsible for
Contractors Means, Methods, or
Job Site Safety.
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Scope of Services
A/E shallprovide anyand alldesign and
construction-related services deemed
necessary to the completion of the project
according to project objectives, schedules, andbudget. A/E shall analyze the needs of the
owner, and based upon this analysis, take all
steps to ensure that the objectives arerealized.
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A Different Look
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Misconception
If I do everything right, I will not get sued.
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Unfounded A/E Claims
Q: What is the average percent of claims filed per year
where the A/E was ultimately not found to be at fault?
A) 7%B) 15%
C) 25%
D) 45%
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Correct Answer
D) 45%
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Average Cost of A/E Claims Defense
Q: What is the average cost firms spend to defend
themselves against a claim they should have never been
involved in?
A) $10,000
B) $16,000
C) $48,000
D) $26,000
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Correct Answer
C) $48,000
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Factors Influencing Claims
Limited personnel and time constraints
Employee turnover reduces accountability
More frivolous claims Economic conditions
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Most Frequent Cause of Claims
Non-technical risk factors play a role in what percentage of
claims?
A) 15%
B) 38%C) 70%
D) 92%
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Correct answer
D) 92%
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Top Non-Technical Claims Factors
Client selection
Negotiation and contract issues
Project team capabilities
Project communications
Quality assurance and quality control
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Top 4 Non-Technical Risk Drivers
13%
6%
16%
23% 24% 25%
27%
39%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Negotiation and
Contracts
Client Selection Project Team
Capabilities
Communication
2001
2009
Percentage of Claims Affected
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Misconception
Design professionals do not get sued very often.
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How Likely Are You to Get Sued?
Statistically speaking, what percentage of firms are likely
to be sued in the next 4 years?
A) 14%
B) 25%
C) 63%
D) 100%
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Correct Answer
D) 100%
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Questions
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Summarizing the High Points
Select Your Employees and
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Select Your Employees and
Subconsultants with Care
Avoid using project managers lacking adequate
training/skills
Avoid using personnel outside their area of expertise Select qualified subconsultants
Make sure subconsultants have adequate insurance
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Scope of Services
Basic services
Additional services
Tasks not to be provided Services to be provided by others
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Thoroughly Negotiate and Review Contracts
Tailor scope and contract to each project
Is the schedule achievable?
Is the budget realistic? Charge an adequate fee for the scope
Implement Quality Assurance and
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Implement Quality Assurance and
Control Measures
Project Selection process
Implement proven QA procedures
Track QA regulatory/technology development Develop standard operating procedures
Develop documentation standards
Define procedures for change orders and disputes
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Use Reliable Project Documentation Procedures
Document all decisions and changes
Document phone conversations
Copy/Save all e-mail
Distribute and keep meeting minutes to the right people
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Communicate Clearly
Communicate regularly with all parties
Seek feedback on your communications
Communicate immediately with involved parties
Promptly seek conflict resolution advice
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Anticipate and Plan for Problems
Set up process to address disputes ASAP
Institute in-house crisis management procedures
Resolve issues at the job site ASAP
Contact your agent at the first sign of trouble
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A Look At Claim Stats
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Civil Engineers
CIVIL ENGINEERS
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Who Sues Civil Engineers?
4%
10%
40%
46%
3%
9%
27%
61%
0% 10% 20% 30% 40% 50% 60% 70%
Other
Contractor
or Subcontractor
Non-Contracting3rd Party
Project Owner
% of Claims Count
% of Claims Dollars
CIVIL ENGINEERS
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Types of Damages
6%
28%
29%
37%
3%
3%
5%
38%
51%
0.1%
0% 10% 20% 30% 40% 50% 60%
All Other
Bodily Injury -
Construction
Bodily Injury -
Other
Property
Damage
Economic
Loss
% of Claims Count
% of Claims Dollars
CIVIL ENGINEERS
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Claim Trigger
Design Error
50%
BI - Construction
3%
BI - Post-Const.
3rd Party
3%
Construction
Schedule
Delays
4%
Other
5%
Unrelated
3rd Party Action
5%
E&O Alleged
in Response to
Suit for Fees
5%
Construction
Defect
18%
Construction
Budget Overruns
7%
CIVIL ENGINEERS
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Frequency & Severity (by project type)
12%
3%
5%
16%
6%
28%
5%
0.2%
11%
1%
2%
0.1%
3%
7%
8%
10%
10%
25%
0% 5% 10% 15% 20% 25% 30%
All Schools/
Colleges
Comm/Ind
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Elements Most Often Involved
6%
4%
5%
8%
14%
7%
18%
0.2%
2%
8%
10%
11%
16%
18%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
Seismic
Retaining Walls
Sewage/
Wastewater
Storm Water
System
Surveying
Grading
Pavement
% of Claims Count
% of Claims Dollars
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Structural Engineers
STRUCTURAL ENGINEERS
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Who Sues Structural Engineers?
10%
11%
7%
72%
10%
13%
15%
62%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Other
Contractor
or Subcontractor
Non-Contracting
3rd Party
Project Owner
% of Claims Count
% of Claims Dollars
STRUCTURAL ENGINEERS
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Types of Damages
1%
3%
1%
40%
55%
1%
3%
4%
42%
50%
0% 10% 20% 30% 40% 50% 60%
Bodily Injury -
Other
Bodily Injury -
Construction
All Other
Economic
Loss
Property
Damage
% of Claims Count
% of Claims Dollars
STRUCTURAL ENGINEERS
-
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83/86
Types of Damages
Design Error
48%
Construction
Defect
21%
Other
7%
BI - Construction
2%
Product
Failure
4%
ConstructionSchedule
Delays
5%
Building
Collapse
5%
Construction
Budget Overruns
8%
STRUCTURAL ENGINEERS
-
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84/86
Frequency & Severity (by project type)
8%
10%
8%
2%
0%
32%
8%
3%
3%
6%
7%
3%
34%
12%
2%
3%
6%
6%
8%
9%
22%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Churches
Sports
Facilities
Bridges
Retail/
Malls
ParkingGarages
Residential
Comm/Ind
-
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85/86
Elements Most Often Involved
10%
1%
8%
1%
5%
12%
21%
3%
5%
5%
6%
9%
12%
19%
20%
24%
0% 5% 10% 15% 20% 25%
Connections
Floors
Slabs
Columns
Roofs
Walls
Foundation
Beams
& Joists
% of Claims Count
% of Claims Dollars
-
7/29/2019 S6_Engineers Professional Liability What is It How Does It Work What Does It Cover_LTC2013
86/86
Questions
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