|
|
| News - Full Story |
|
The big problem of faulty buildingsCommercial property developers, owners and insurance companies spend millions of dollars to pay for design flaws, inferior materials and faulty/negligent workmanship. The issue has become such a concern that it is now affecting building design and construction professionals. Effective July 1st, architects can expect to see their professional liability premiums increase by as much as four times their current rate and in Ontario architects and engineers will soon be required to carry liability coverage for up to $1.0 million per claim.
Mandatory liability coverage for design and construction professionals is not consistent from province to province. In Quebec, both the architectural and engineering professional associations require their members to have it. Engineering associations in Manitoba and New Brunswick have also initiated similar mandatory requirements. In all other provinces however, property owners are at more risk for paying the bill if things go wrong with a building structure.
Leaky wall claddings or windows and roofs accidentally torched during construction are a couple of reasons why negotiated insurance claim payments have skyrocketed. However it’s hard to give specific examples of dollar amounts or cases since many of these settlements are privately negotiated and the people involved typically don’t want to discuss the details.
It has been estimated that $70.0 million to $80.0 million per year is paid out to satisfy claims against architects, engineering and contracting (AEC) firms. Architects and engineers alone contribute $100 million a year in premiums for professional liability coverage (also called Errors & Omissions coverage) in order to meet the demands of many developers and owners who are insisting that design and construction professionals provide proof of insurance. A firm billing fees of $5.0 million would typically be looking at $250,000 in annual premiums.
Insurers are paying claims on between 25% and 30% of their policies each year and those claims can range between $2,000 to over $1.0 million. Typically an owner must bear the initial cost to correct the problem before someone is hurt or the problem becomes worse, but there is no guarantee they will recover that cost. In some cases, it can take up to 10 years for claims to be settled and during that time the defendant may have gone bankrupt or moved away.
Each province has a different statute of limitations on claims against AEC firms. In Ontario it’s 15 years, BC is 35 years and Alberta is 10 years. Approximately 1% of claims reach the courtroom, while the balance are settled privately.
Insurance is gaining a higher profile as owners become more aware of the exposure and risk associated with design. Many owners are starting to require that AEC consultants have professional liability coverage. Should there be a problem, owners hope to recover the costs through the insurance coverage of one or more of their consultants. It therefore becomes important to determine who has responsibility for what part of the project.
Tracing a mistake back to it’s origin often requires sorting through a variety of hard copy and electronic documents containing work plans and shop drawings. However, the AEC partnership of Griffels Associates Ltd. and NORR Ltd. Architects and Engineers has developed document management software called ProjectQueries (PQ) that will track responsibilities throughout construction. It documents every exchange of information between owners, consultants and suppliers, in effect preserving all interaction during the process. The intent is to reduce the number of disputes that occur over mistakes.
The cost of doing business for AEC firms is high and there is a greater chance that a firm will be sued or have a claim against it.
(Adapted from an article originally published in The Globe and Mail on February 1, 2005 by Albert Warson.)
Contact your Hallmark Insurance broker at 416-492-4070 or 1-800-492-4070 to discuss options for professional liability coverage. We’ll help you manage your design and/or construction risks.
| | | |
|
|
