Adding an “Additional Insured” in the Professional Services Agreement: an exercise in futility! (law note)
As an architect or engineer, you may be asked to sign a contract that has a requirement of adding the Owner (or Contractor, in a design-build project) to your own insurance as an “additional insured”. This is usually a fall out of the fact that the Owner is treating you like a contractor and using “stock” contract language. It is not appropriate, nor sometimes even possible, to add the Owner to your professional liability policy.
This is beacuse professional liability insurance only provides coverage for “professional services”. That is, if it is even possible to buy such coverage, it won’t work to avoid any risks the Owner is seeking to avoid, because the Owner is not providing licensed architectural or engineering services on the Project.
In fact, because of the way professional liability policies are generally written, naming the project Owner as an additional insured essentially voids any coverage for the owner for your Firm’s design errors & omissions.
What should you do with a stubborn Owner who insists he wants to be an additional insured under your E&O policy? Explain the facts to him, and point out he is risking voiding coverage all together. Tell him to call me, or point out this post to him. Also, several insurance brokers, agents, and companies have simple one or two page information sheets that you can provide to the Owner to help with his education.
Remember, having an “Additional Insured” in an Errors & Omissions policy is a true exercise in futility. It may not be what the Owner wants to hear, but such is life!
Question time: have you ever been asked to add an Owner to your E&O insurance? How did you handle it? Share in the comments section, below.
And if you haven’t already, be sure to download your free white paper on the 7 Critical Mistakes that Architects & Engineers make– it’s in the box on the top right hand side of the blog.
Think most business lawsuits effect the “big guys”? Not according to the folks at Bolt Insuarnce. According to them, 57% of lawsuits effect companies making less than $1 million in revenue. Did you know that 1 in 3 small business owners are sued or threatened with a law suit?SOME CURRENT SCARY FACTS:
- $100 billion: How much small businesses spend on legal action in the U.S. annually
- 25%: Number of harassment claims has risen since 2006
- $404 Million: Price to settle discrimination related law suits each year
- 104 Billion: Annual cost to settle tort liability
Check out the neat infographic below to learn Five Ways to Protect Your Firm.
What about you, blog readers? Have YOU had the occasion to be threatened with a lawsuit? Learn any good lessons to share? If so, drop a note below.
Infograph: BOLT Insurance
The police are at the door! Service of the construction lawsuit on your company (Law & Order: Hard Hat files Part 2)
The police? Yes, that’s right. If you are sued, at least in North Carolina, you may find Mr. Policeman (or Ms. Policewoman) at your door. There are several ways that you may find out you or your company are being sued, but undoubtedly seeing the Sheriff at the door is the most nerve-racking. Heck, we have Sheriffs in our law office occasionally to serve papers, and the sight never fails to startle me. So be forewarned—the first you find out that there is a lawsuit may be when Johnny Law himself comes knocking.
While unnerving (as it is often meant to be by the party suing you), rest assured that all the Sheriff will be doing is identifying you and handing you papers showing you’ve been sued. The Sheriff doesn’t actually have to hand you the papers personally- in fact, depending on if and how you are incorporated, he may be handing them to your spouse, another adult that resides in your house, your business partner, or an officer or manager of your professional association. While the Sheriff is not supposed to leave papers with a mere employee, that can and does happen as well.
The Sheriff is not the only way you can be sued. You can also get a certified mail package—you know, the type that requires you to go sign for it at the post office. Or, you may get a Fed Ex package. If you are being sued in federal court, or you know the lawsuit is coming, you may not get anything, as it may all come to your lawyer instead.
What should you do if you do get the lawsuit (called the Complaint)? First, run, do not walk, to your insurance carrier and/or lawyer. Do not pass go. This should be the first thing you do. If you don’t have a lawyer, but you have insurance, your agent should be able to help you report the claim, and a lawyer will be assigned to you by the insurance company. If you have a lawyer, you can report to him/her, and ask the lawyer to make the claim on your behalf to your insurance company.
Remember, however, that you need to report it as soon as you can. In state actions in North Carolina, you have 30 days from receipt to respond. In federal actions, you have 20 days. There are certain rules concerning weekends and governmental holidays that change these deadlines at times. But the important thing to remember is that you must respond, timely, or you can end up with a judgment entered against you in default. So, when you report the lawsuit, the first thing your agent or lawyer will want to know is the date you (or someone connected with you) first received the Complaint.
If you report the claim and do not hear back? Follow up. Never assume that an email went through or that the person you called isn’t on vacation or in the hospital. Make sure that you speak with your agent and/or lawyer personally and that they know when you were served.
Questions? Comments? Have you ever been sued? Do you now know something you wish you knew then? Drop me a line or comment below.
Next week in our series: You have the right to an attorney! (but one will not be appointed for your construction lawsuit)
Photo (c) freefoto.com
By now, I hope you know me well enough to know that I’d never, ever say you should make a guaranty of performance, period, let alone guaranty the green performance for a new building. However, sometimes caution has to be thrown to the wind to get the job– at least in the case of a recent GSA design-build project in Seattle.
There, the design-build team agreed that the GSA could withhold 0.5% of the original contract amount, or $330,000, pending the achievement of energy goals. As writer Suzanne H. Harness, J.D., AIA, noted recently:
The GSA’s approach is diametrically opposed to the recommendations of the American Institute of Architects, which advises both architects and contractors not to guarantee or warrant the achievement of a sustainability goal. The AIA’s 2011 Sustainability Guide explains the obvious: contractors and architects can design and construct a building, but the owner operates it, and the owner’s actions are beyond the control of the design and construction team. If the owner operates the building differently from the assumptions used during design, performance goals will likely not be met, even if the building is perfectly constructed. [Emphasis added].
Ms. Harness also correctly noted that professional liability insurance would not cover such a guarantee of performance. So beware to the design team who takes such a project on: they can be held contractually liable, but there will not be insurance to cushion the fall out from any lawsuit.
Just DON’T do it!
Today, I’m guest posting over at Chris Hill’s Construction Law Musings blog.
My article is on the importance of reporting a potential construction claim to your insurance carrier at the first sign of trouble. Remember, it’s the cover up that always gets you into trouble. Just ask the politicians. Or this kid.
(c) Photo from Maiscio