| Ousting Third Party Defense From Professional Liability Contracts |
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| Written by Tim Esler |
| Thursday, 07 January 2010 18:54 |
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Engineers' and architects' professional liability insurance policies are "indemnification policies" which means that the insurance carrier agrees to "make whole" any party that suffers loss or injury resulting from "negligent deliverance of professional services" up to the available limits of the professional liability insurance policy. Negligence is the operative word meaning that the standard of care is the "ordinary man" standard (not perfection).
Engineers' and architects' professional liability insurance policies are "indemnification policies" which means that the insurance carrier agrees to "make whole" any party that suffers loss or injury resulting from "negligent deliverance of professional services" up to the available limits of the professional liability insurance policy. Negligence is the operative word meaning that the standard of care is the "ordinary man" standard (not perfection). Regrettably, most drafters of contracts for the professional services of architects and engineers are unaware that as opposed to a General Liability policy's "additional insured" provision which provides affirmative defense of a third party, an A/E professional liability policy does not have a provision to provide "defense" outside of the design professional. Most owners are not educated properly to understand the implications that differentiate engineers' or architects' professional liability insurance policies from a contractor's general liability policy. Why is this uninsurable? Your Professional Liability is triggered by your "actual or alleged negligence" and is for the benefit of the design professional herself. Providing affirmative defense to a third party arising out of your alleged negligence is well beyond the policy provisions. Point in fact is that any professional liability will INDEMNIFY [meaning reimburse] an owner for costs that they actually incur in their defense should the facts bear out that the Engineer or Architect was actually negligent. [IE -- we will reimburse them after it is proven and not before --- and doesn't that seem reasonable that you are innocent until proven guilty?] Furthermore, the contractual liability exclusion in all professional liability insurance policies for architects and engineers states that the only contractual coverage granted is "such liability that would have existed in the absence of a contract." Basically, this means that the design professional is always held to the negligence standard of care even without a contract. What should you do? Strike the word "defend" from the contract and make sure that the balance of the indemnity provision is based on your "negligence." "Piece of cake -- right?" Now, what do I REALLY do when the owner [or their attorney] balks at removal of the word "defend" from the contract? DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Timothy Esler, CPCU, is a Principal with Fenner & Esler Insurance Agency, a boutique insurance brokerage and risk management organization representing architects and engineers countrywide. Tim's complete original articles are published in The Zweig Letter. |