s6_engineers professional liability what is it how does it work what does it cover_ltc2013

7/29/2019 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



Service Rendered

Date Claim is Made


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



Service Rendered

Date Claim is Made


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



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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



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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%



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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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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


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Questions