Engineering Inc. - July/August 2008 - (Page 22)

I ’m already seeing spikes in smaller nuisance claims. gAry prAther travelers “I’m already seeing spikes in smaller nuisance claims,” says Travelers Risk Management Director Gary Prather, “many of which would typically have been settled a few years ago.” More firms say they paid a claim they believed to be frivolous, up from 19 percent in 2004 to 28 percent last year, according to the survey. Kopplin says this trend might reflect the belief that it is sometimes cheaper to settle than to prove your case in court. Areas to Watch One potential problem area that the market has had its eye on recently is mold. Fortunately, Travelers’s Genecki says, “mold never materialized into the next asbestos,” despite concerns from some industry watchers that it would. Prather says that’s because the industry spotted the problems and quickly took action. Insurers also continue to watch for claims arising out of Building Information Modeling, integrated project delivery, green building design and other emerging technologies and standards. Carriers say it is still early, but warn not to over-promise in these areas. Dixon helps clients “negotiate insurable provisions” in complex contracts. She says the questions generated by design/build become more complicated with the introduction of multiparty master contracts and integrated project delivery. Carriers look for a blurring of lines of responsibility and the possibility that designers could be held liable for elements beyond their control, such as job-site safety. 22 ENGINEERING INC. JULY / AUGUST 2008 Examining contracts for insurability enables design firms to “make business decisions” about whether to participate and how much risk to manage, says Dixon. A bad contract—or none at all—“will affect the firm’s practice two to three years down the road” in terms of insurance pricing and claims results, she says. Dixon also cautions designers to be on the lookout for indemnity clauses, especially in a gloomy economy. Some contracts even go as far as to state that engineers will indemnify, defend and hold harmless owners for any claims arising out of the engineers’ services. Another area of concern is prevailing party clauses, where the prevailing party can recover its legal expenses from the opposing party in a lawsuit. Most policies, however, make no provision for paying the legal costs of the party suing the designer. Result: A firm could find itself paying outof-pocket, even if the claim goes to trial and the engineer is not found negligent. Experts preach vigilance in selecting clients and owners, the two of which are responsible for 80 percent of claims. XL’s Rabasca was particularly struck by the 61 percent of respondents who said they rarely or never turn down work because of concern about potential risk. Calling client selection “a major nontechnical risk driver for design professionals,” he points out the 533 respondents who reported spending 48,000 personnel hours defending claims. On average, that’s about 90 hours per firm, higher than last year’s average of 72 hours. “That cost is not reflected in the premiums,” explains Rabasca. “It’s a direct out-of-pocket cost to the firm.” Outlook forward, not backward. That dichotomy might mean that some firms projecting a decline in business likely won’t see a commensurate decline in premiums. While the construction industry should expect a slowdown, she says, it usually is among the first sectors to rebound when the economic climate improves. Past soft markets have begun to harden as a result of increased claims activity, says Kopplin, noting that it takes claims a long time to work through the system. That means that, especially for new players, “it could take years for their losses to really show up.” Still, short of a major shakeup in providers or huge, unanticipated losses, he says, “the soft market is continuing” for the foreseeable future. XL’s Rabasca says some carriers might struggle to pay claims, especially if prices drop too low. But, “when the smoke clears and the hard market returns, which it will, the carriers that are responsibly underwriting will remain standing.” The complete results of the 2008 ACEC Professional Liability Insurance Survey of Member Firms (for F.Y. 2007) can be purchased through the ACEC Bookstore at www.acec.org. n Maureen Conley is a business writer living in Kensington, Md. M old never materialized into the next asbestos. lee geneCki travelers Though growth rates have slowed, Rogers says, Lexington is seeing revenue forecasts from design firms that are “flat to slightly up.” In fact, he says, “we have seen very few insureds forecasting lower revenue than prior years.” Enos expects a downturn in the construction industry over the next year, but warns that insurance carriers price http://www.acec.org

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Engineering Inc. - July/August 2008 Table of Contents From ACEC to You News & Notes Market Watch Legislative Action Congressman Kendrick Meek Going Global 2008 Professional Liability Insurance Survey Bridging the Gap 2008 Convention Wrap Up 2008-2009 Executive Committee 2008 Fall Conference Primer Business Insights Members in the News One on One

Engineering Inc. - July/August 2008

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