Jared Maxwell, Ames and Gough
For architecture and engineering firms, professional indemnity insurance is a cornerstone of risk management. These policies are almost always written on a claims basis, so timely reporting of claims is one of the most critical, yet often overlooked, requirements for preserving coverage. In practice, how and when a company reports a claim can have as much impact as the claim itself.
Equally important, and often underutilized, is the pre-claim assistance built into many professional indemnity policies, which can help businesses resolve issues before they escalate.
Unlike accident-based casualty insurance policies, a claims liability policy is only triggered when a claim is made against the company and reported to the insurer during the policy period or within a stipulated extended reporting period.
This creates a strict time requirement. If a claim is reported late, even within a short period, coverage can be denied outright, regardless of the merit of the claim or whether the company has practiced good risk management and is considered a “strong risk” by the insurer. Policy language regarding any extension for claim notification varies by insurer, but is often vague, leaving room for denial or dispute. As such, design firms should endeavor to report all claims promptly and within the policy period.
The definition of a claim for businesses is broader than many think. It includes lawsuits, but also written or even verbal claims for damages, allegations of professional misconduct, tolling agreement requests or certain contractual disputes. Many policies also allow reporting of circumstances that may give rise to a claim, where both coverage protection and pre-claim assistance begin to intersect.
This is where breakdowns often occur. Managers can try to resolve problems informally, such as a design discrepancy, a coordination problem, or an unsatisfied customer, without involving insurance. Although well-intentioned, this approach can be counterproductive. If the problem later turns into a formal claim and was not reported when it first became known, the insurer may deny coverage. More importantly, by not reporting early, companies can’t take advantage of pre-claim assistance that can be critical to avoiding escalation altogether.
Early intervention
Take advantage of pre-claim assistance that allows businesses to hire an insurer at the first sign of trouble. Many professional liability carriers offer access to experienced claims professionals, legal counsel and technical experts who understand the firms’ exposures. They can help assess situations, guide communications and develop a damage mitigation strategy. In many cases, early intervention can resolve issues before they become claims, saving significant time, cost and disruption.
Some policies also include rectification expense coverage that can reimburse the cost of correcting a design error before it results in a third-party claim. Although typically subject to insurer approval and sublimits, coverage reinforces the value of early participation. Addressing a problem proactively is almost always more cost-effective than defending a claim later.
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Timely reporting is especially important given the lengthy nature of corporate exposures. Claims can arise years after services have been performed, often related to construction defects or project performance issues. Because policies are claimed, the policy active when a claim is made and reported is the one that responds, not the policy when the work was done. This makes continuity of coverage and disciplined reporting essential.
Access to Resources
A particularly valuable tool is the circumstantial notice. When a company becomes aware of a situation that could lead to a claim, such as a known design problem or an emerging dispute, it can notify the insurer during the current policy period. If done correctly, any future claim arising from this situation is considered to have been made during that previous policy period, preserving coverage and often triggering access to pre-claim remedies.
From a best practice perspective, companies should establish clear internal protocols, educate project teams on what constitutes a reportable matter, engage a broker early, and err on the side of reporting. In doing so, they not only protect coverage, but also unlock the full value of a policy.
In the A/E world, where projects are complex and disputes are inevitable, professional indemnity insurance is more than financial support. When combined with timely reporting and proactive pre-claim support, it becomes a powerful tool to manage risk, protect customer relationships and preserve the long-term success of the business.
Jared Maxwell is a senior vice president and partner at insurance brokerage Ames & Gough. He can be reached at jmaxwell@amesgough.com.
