ARE Practice Management- Insurance
Understanding the various types of insurance that architecture firms use is important for architects to understand as it allows for the minimization of risk during the design and construction processes of architectural projects. It is also necessary to understand insurance for the successful running of a practice in terms of the legal and business aspects of practice, as well as ensuring the financial security of a firm. The topic of insurance is covered in the Practice Management section of the ARE. Among the types of insurance that the exam taker should be familiar with are professional liability insurance, commercial general liability insurance, worker's compensation insurance, property insurance, commercial automobile insurance, and employment practices insurance. While all of these are particular types of insurance that a business may carry, of particular importance in studying for the ARE exam is to have a solid understanding of professional liability insurance as it pertains to architectural practice.
1. Professional Liability Insurance
Professional liability insurance is a type of insurance that protects the practitioner from claims of malpractice. This would cover errors and omissions in professional practice and claims of negligence more generally. It also helps protects an architect in the event that a problem occurs due to incorrect advice given to a client or if there is a real or perceived failure to deliver promised services. The insurance, however, does not cover any type of practice which is knowingly or intentionally done or any fraudulent acts that are committed. Although it is not required by law that architects or architectural firms carry this type of insurance, it is a wise decision to do so. Without professional liability insurance, a practitioner could potentially be personally liable for claims, even if the practitioner is working for a limited liability company if that company does not have professional liability insurance. It is, therefore, necessary that such insurance be carried in order to prevent such risks. No matter how diligent and comprehensive an architect may be, errors and omissions inevitably occur. Architects cannot and should not guarantee perfection in the construction documents they produce or in any other aspect of their work. It is best to be prepared for such occurrences with an insurance policy that helps mitigate legal and financial risks.
2. How Much Coverage is Necessary?
Professional liability insurance is purchased for a particular policy period. Given the potential for claims to be made years after a project is completed, the policy should be held for the period up until the appropriate statute of limitations is reached. Professional liability insurance can provide a firm with legal assistance and cover the costs of defense against a claim, making it especially beneficial for firms to hold such coverage. Typically, there is a deductible that would be paid by the insurance holder prior to the payment for any qualifying event. The insurance policies can be purchased for different levels of protection which will come at a cost of varying premium amounts that must be paid for the coverage. The premium will also be affected by the types of work and types of projects which the professional performs, as well as other factors. The limits on liability may be given for individual claims and for the combined amount for multiple claims should they occur. The amount of coverage that an architectural firm should purchase will depend on such factors as the types of work the firm does and the size of the firm, as well as the number and scale of its projects. It should be noted also that there are typically limits to the geographic area to which the policy coverage can apply.
3. Finding the Right Information
Insurance companies providing professional liability insurance also often provide resources and information which can help a company better understand and reduce their risk exposure. In the event that issues arise, such companies also often provide pre-claim assistance, including legal advice.
4. Different Types of Liability Insurance
While exam takers should focus on understanding the topic of professional liability insurance, it is necessary to have a basic understanding of other types of insurance which may also be held by an architectural firm. Having this familiarity aids in providing an understanding of what types of claims may or may not be covered by a particular type of insurance. These other types of insurance are discussed below.
4.1. Commercial General Liability Insurance
Commercial general liability insurance, by contrast, are less specialized than professional liability insurance and covers claims of non-professional negligence. This includes bodily injuries and property damage that occur whether at the practitioner's office, at the site of a project, or while traveling, as well as claims of libel. The insurance policy which is held at the time of the occurrence of the event which triggered the claim is the policy that provides coverage, even if a different policy is held at the time at which the claim is made.
4.2. Worker's Compensation Insurance
Worker's compensation insurance provides coverage against claims made specifically by employees against their employers for body injuries that happen while employed by the employer. It can help cover the costs of medical expenses and lost wages as a result of injuries, as well as other costs.
4.3. Property Insurance
Property insurance is often held to receive compensation in the event that fires or other such events occur that destroy the company's office. If the space is leased rather than owned by the company, then the renter typically must carry the appropriate insurance to protect against these losses. The terms of leases and the requirements and conditions for insurance that must be held may vary depending upon the particular lease agreement.
4.4. Commercial Automobile Insurance
Commercial automobile insurance typically provides coverage for vehicle damage and injury which occurs while vehicles are used in the course of business activities. It can cover vehicles whether they are owned, leased, or rented by the company.
4.5. Employment Practices Liability Insurance
Employment practices liability insurance can provide a company with coverage against claims such as those of sexual harassment or discrimination in the workplace.
In summary, it is important that architects understand the various types of insurance available to them. Such an understanding is critical to minimizing legal and financial risks and ensuring a financially secure business practice.