Engineering Inc. - January/February 2010 - 32

oNE oN oNE A Look Back and Ahead at Professional Liability Insurance broad coverage including worldwide protection, pollution coverage, multiyear policies, pre-claims assistance and risk management services that include seminars, contract reviews and risk management publications, plus support for the A/E professional associations at the national, state and local levels. common mistakes.” In my opinion, the majority of client-generated claims against design professionals are triggered by unfulfilled client expectations as opposed to professional negligence. While professional negligence always is alleged in a claim, it is very seldom proven. The majority of the unfulfilled expectations can be traced back to issues such as failure to require a client to have a well-defined program or scope of services; underfunded projects with no or inadequate project funding contingencies; allowing a client to control the budget, scope and quality; agreeing to unreasonable time restraints; failure to negotiate, sign and enforce good contracts; telling a client what they want to hear versus what they need to hear; and poor project communication and documentation. changed that much. Based on Schinnerer & CNA statistics, 65 percent of all claims against design professionals are brought by their clients, and 71 percent of the dollars that Schinnerer & CNA pays to settle claims goes to its clients. General contractor claims account for an additional 11 percent of claims and 12 percent of the dollars that Schinnerer & CNA pays out on claims. The majority of claims still involve property damage to a project or project budget cost overruns. Thomas Porterfield, retired vice president, Victor O. Schinnerer & Co., Chevy Chase, Md. Editor’s Note: Thomas Porterfield recently retired from Victor O. Schinnerer & Co., the professional liability insurance underwriting firm, after a 36-year career. A former chairman of the ACEC Risk Management Committee, his expertise has helped shape the Council’s risk management services for more than two decades. Q . how does today’s PLI market compare with that in previous recessions? Q . how has the professional liability insurance industry evolved during your career? . There has been a dramatic increase in the number of A/E professional liability insurance markets available to design professionals. In 1956, Schinnerer & CNA introduced the first A/E professional liability insurance program and was the only market available to design professionals. However, based on the ACEC 2009 Professional Liability Insurance Survey of Member Firms, there is a minimum of 17 carriers available today to design professionals. Design professionals also have benefited by the evolution of programs that offer ENGINEERING INC. Q . The impact on design professionals and the A/E professional liability market includes small and mediumsized design firms being forced to drop their coverage because of declining billings. Some firms also may reduce their limits of coverage to achieve a premium savings. A firm’s annual billings are a key underwriting consideration in the premium computation process. A decline in billings may lead to a reduction in insurance company revenues to the point where some carriers may abandon the market because it is no longer profitable for them. Q . what risk trends on the horizon should member Firms pay particularly close attention to? Q . how have the nature, frequency and severity of PLI claims against engineering firms changed over the course of three decades? . I prefer not to classify anything as “the most . based on your experience, what are the most common mistakes that engineering firms make in their efforts to manage professional risk? . Since the mid-1980s, when roughly 44 out of every 100 firms had a claim brought against them, the frequency of claims has remained somewhat stable at about 25 out of every 100 firms. With rare exceptions, the claim frequency and severity numbers for the last several decades have not . I recommend that they continue to focus on client relationships because, in my opinion, client-generated claims will continue to be the source of the majority of claims and claim payments. I also recommend focusing on anything new or different, such as green building design and Building Information Modeling, along with new methods of project delivery. Each of these has the potential to advance the construction industry and, in many cases, the projects will be successful. Because these elements are new, however, they also create the potential for risks that are not known, or are known but tend to be overlooked, and that can lead to claims. n JaNuaRy / FEbRuaRy 2010

Engineering Inc. - January/February 2010

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