By Mark Jackson, JCJ Insurance
As a Design Professional, you are trained to solve problems. Whether developing an innovative design concept, repurposing an existing structure, or addressing damage following a storm, problem-solving is an essential part of what you do.
But what happens when the problem involves one of your own projects?
Perhaps an Owner or Contractor calls with a concern about your work. Your natural reaction may be to investigate the issue, identify a solution, and get the project back on track as quickly as possible. However, before taking any action, there is an important step you should consider: contacting your insurance broker and discussing whether your Professional Liability insurance company should be notified.
Many Design Professionals hesitate to involve their insurance company because the issue does not seem like a “claim.” No one has filed a lawsuit or made a formal demand. Others may worry that simply notifying the insurance company will increase their firm’s insurance costs. But that hesitation could mean missing out an important resource available under many Professional Liability policies – pre-claims assistance.
What Is Pre-Claims Assistance?
Many Professional Liability insurance companies offer pre-claims assistance to help Design Professionals address potential liability issues before they develop into formal claims or lawsuits. Depending on the policy and insurance company, this assistance may be available without triggering the policy deductible and can include access to experienced claims professionals or legal counsel.
The goal of pre-claims assistance is to identify and address problems early, while there may still be an opportunity to keep them from becoming larger and more expensive disputes. Early involvement can also help prevent the Design Professional from taking steps that could inadvertently complicate the situation.
Potential pre-claim situations may include:
- Fee disputes
- Potential code issues
- Client complaints or allegations
- Requests for unusual or extensive project documentation
- Disagreements involving project responsibilities
- Other circumstances that suggest a dispute may be developing
Getting your broker and insurance company involved early may provide several important benefits.
Early Intervention
The earlier a potential problem is addressed, the greater the opportunity to keep it from becoming a costly claim or lawsuit. Pre-claims assistance allows the insurance company to get involved before positions harden and the dispute escalates, when there may still be an opportunity to reach an informal resolution.
Risk Mitigation
Pre-claims assistance can help Design Professionals evaluate and mitigate potential professional liability exposures. Depending on the policy, the insurance company may pay certain costs associated with pre-claims without applying the firm’s deductible. Involving your broker and insurance company early can also help your firm determine the appropriate response before making statements, commitments, or taking corrective action that could affect a future claim.
Expert Guidance
Design Professionals are experts in design, but they may not routinely handle allegations of professional negligence or potential insurance claims. Pre-claims assistance can provide access to experienced claims professionals and, when appropriate, attorneys who understand professional liability issues. These professionals can help evaluate the circumstances, identify potential exposures, and provide guidance regarding possible next steps.
Protection of Your Firm’s Reputation
A firm’s reputation and client relationships are among its most valuable assets. Addressing a dispute early and thoughtfully may provide an opportunity to resolve the issue before it damages an important relationship or develops into litigation. Pre-claims assistance can help a firm approach difficult conversations strategically while protecting its interests.
Potential Cost Savings
The longer a dispute continues, typically the more difficult and expensive it becomes to resolve. Addressing an issue early may help avoid or reduce legal expenses, expert costs, damages, and the internal time required to manage a formal claim. When pre-claims assistance is available, the insurance company may absorb certain costs associated with investigating or addressing the matter.
Protecting Your Position Under the Policy
Early reporting can also be important from an insurance coverage standpoint. Depending on the terms of the policy, reporting a claim or qualifying circumstance during the current policy period may establish which policy responds if the matter later develops into a claim.
Because reporting provisions vary significantly among insurers and policy forms, firms should consult their insurance broker before assuming that a particular communication or situation qualifies as a pre-claim or properly reported circumstance.
Pre-Claim or Reportable Circumstance?
Not every potential problem qualifies for pre-claims assistance. Sometimes the facts are serious enough that a reasonable person could expect a claim to arise. In that situation, the matter may need to be reported as a circumstance or potential claim under the firm’s Professional Liability policy.
Circumstance-reporting provisions generally allow an insured to notify the insurance company of specific facts or circumstances that may later result in a claim. If a subsequent claim arises from the properly reported circumstances, the policy may treat the claim as relating back to the policy in effect when the circumstances were originally reported, subject to the specific policy language.
This distinction is important. Some policies allow the insured to report potential claims or circumstances, while others may require reporting when certain conditions are met. While rare, some insurance companies will not allow reporting potential claims or circumstances.
Policy language concerning pre-claims assistance, circumstances, and potential claims can differ significantly among insurance companies, which is another reason to involve your insurance broker early.
In Closing
Design Professionals encounter problems every day. The challenge is recognizing when an ordinary project problem has the potential to become something more serious. Project managers and other key employees should be trained to recognize warning signs and quickly notify firm leadership when significant or unresolved problems arise. Doing so gives the firm an opportunity to evaluate whether the insurance broker and insurance company should become involved.
It is also important for your firm to consider working with an insurance broker who specializes in working with Architects and Engineers. A specialist should understand the differences among Professional Liability policy forms and can help your firm evaluate an issue, understand its reporting obligations, and determine when involving the insurance company may be appropriate or when pre-claims assistance is available.
Pre-claims assistance is more than an insurance policy benefit. It can be an important component of your firm’s overall risk management strategy. Getting the right people involved early may help your firm resolve problems before they become claims, protect valuable client relationships, reduce potential costs, and avoid actions that could complicate an otherwise manageable situation.