Why Engineers and Architects Need Business Insurance
Architects and engineers play a critical role in the design and functionality of the projects they work on. Safety, materials, and financial projections and recommendations are taken into consideration for every project. Many contractors may be involved which may ultimately affect the outcome of the project.
As an engineer involved in such a project, you risk being drawn into any disputes that may arise if something goes awry. Every engineering firm needs to understand the insurance risks assumed and how to protect against that risk. What are some of the risks?
- You’re unable to complete a project on time
- A design error in your plans leads to a project delay
- Your finished project is faulty and you are sued
- A poorly written software program renders an inaccurate design
In all of these instances, a professional liability insurance policy can protect an engineer or architect from liability.
Who Needs Liability Insurance?
So what type of architects + engineers should consider insurance coverage?
- Civil Engineer
- Structural Engineer
- Software Engineer
- Mechanical Engineer
- Land Surveyors
- Transportation Engineer
- Building Inspector
- Electrical Engineer
- Environmental Engineer
- Industrial Engineer
- Interior Designer
- Landscape Architect
This isn’t an exhaustive list but is simply meant to give you a starting point.
Trade organizations—such as The American Institute of Architects—encourage architects and engineers to be proactive to protect their business with specialized coverage to their industry. It has become standard practice for clients to require their architects and engineers to obtain insurance.
Professional Liability Insurance for Engineers
Professional liability insurance—often referred to as errors and omissions insurance or E&O insurance—will protect you and your firm if a client files a claim against you. What kind of claims? A professional liability insurance policy protects you if you’re accused of:
- Alleged professional negligence/negligent actions
- Missed deadlines
- Undelivered services
- Copyright infringement
- Breach of nondisclosure
- Claims of libel or slander
If your firm is the cause of a financial loss, clients will not hesitate to sue you for the role you or your firm played. Professional liability insurance will pay for attorney fees, defense costs, and judgments or settlements up to the limits of your policy.
A professional liability policy helps keep your firm financially solvent in the event of a large claim. An engineering firm may wish to consider umbrella insurance. This coverage would begin when the policy limits of the professional liability coverage have been surpassed.
Other Commercial Insurance Policies to Consider
Engineering firms require the same types of insurance policies as any other business to cover the basic risks. An engineering firm needs general liability insurance, commercial property insurance, commercial vehicle insurance, and workers’ compensation insurance as part of their business insurance package.
General Liability Insurance
General liability insurance will cover your firm if you are sued by a customer for claims of property damage or bodily injury to a client, subcontractor, or other third party. A general liability policy will cover legal expenses, settlements, and medical expenses that may be awarded.
Example: A potential client comes to your architectural firm to see the presentation you've prepared. Unfortunately, the client doesn't make it through the front door. They slip on your icy sidewalk and crack their head. They are immediately rushed to the emergency room and end up suing you. General liability insurance covers their medical expenses and the costly settlement your firm must pay for their injury.
Commercial Property Insurance
Commercial property insurance (also referred to as business property) will cover both owned and leased office space. This insurance will also cover office furnishing and equipment in the event of a fire, hail, tornado, theft, or vandalism. It may also cover property damage caused by you or your employees at a construction site as well.
Business Owners Policy
A small engineering firm may qualify for a business owners' policy, which is a package of a general liability policy, commercial property insurance, and business interruption insurance. Business interruption insurance helps carry your business through if your property is damaged. It can cover payroll, taxes, lost profits, and a temporary office location. Insurance companies can offer this policy at a more affordable price than purchasing each insurance option separately.
Workers' Compensation Insurance
Workers' compensation insurance is required by most states when you hire employees. This insurance will protect your employees if they are injured on the job or are exposed to something that makes them ill. This liability policy pays for their medical expenses and covers their lost wages while they're recuperating. In return, the business owner is often protected against being sued by the employee for this injury.
Example: One of your engineers is visiting a job site to make sure everything is being built properly and is structurally sound. While at the job site, he trips on a loose piece of wood and breaks his arm. Workers' compensation coverage will pay for his medical expenses and lost wages while he's not at the office.
How Much Does Professional Liability Insurance Cost Engineers?
Because engineers and architects are in a field that faces higher business risks, the cost of professional liability insurance is higher than in other fields. The starting cost for a $1 million professional liability insurance policy (on the low end of recommended coverage) is around $125–$150 a month. But an insurance agent will take into account numerous factors when creating a quote for an engineering business:
- How many employees do you have?
- What specialty is your business?
- What services do you provide?
- In what state(s) do you work?
- Do you hire subcontractors?
- Have you had previous claims?
- What is the annual revenue of your business?
Architects and Engineers may find it beneficial to shop around different professional liability insurance policies.
How Do You Choose the Right Agent and Insurance Company?
Trust must be among the first factors to be considered—in the agent and the company. Ratings for stability can be checked through rating bureaus such as A.M. Best Co., and Standard & Poor, Inc. Trust in your agent can be gained by their experience and knowledge of your industry.
A business owner must be prepared to ask agents detailed questions. Are they offering different deductibles for your review? Do they explain how to report claims? Is the policy on a “claims made” or “per occurrence” basis? What are the exclusions and how it pertains to you? These are all questions you should feel comfortable asking the agents you work with.
Have a conversation with one or more licensed insurance professionals and review your engineering firm’s insurance coverage. Ask questions and don’t assume your current insurance will cover any claims made against your or your firm. Part of risk management is choosing the right insurance broker and company for your business needs.
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Related Articles: Errors and Omissions Insurance, Liability Insurance for Consultants