E&O Insurance Is the Primary Backstop for Professional Liability
Professional liability insurance - commonly called Errors and Omissions (E&O) insurance - is the coverage that protects architects when they are alleged to have made design errors, omissions, or professional negligence claims. It is distinct from general liability insurance (which covers bodily injury and property damage) and is specific to the risks of providing professional services. Understanding what E&O covers, how it works, and how it relates to the standard of care is essential PcM knowledge.
What E&O Insurance Covers
E&O insurance covers claims arising from professional services - specifically claims alleging that the architect failed to meet the standard of care. Common covered claims include: design errors that result in construction defects, specification errors or omissions, failure to identify code violations, professional negligence in construction administration, and delay claims resulting from design errors. The insurer defends the architect (pays legal fees and costs) and pays settlements or judgments up to the policy limits.
How E&O Claims-Made Coverage Works
Most E&O policies are written on a claims-made basis, not an occurrence basis. This distinction is critical:
- Claims-made: The policy covers claims that are both made (reported to the insurer) AND arise from acts during the policy period. If the architect's policy lapses, a claim filed after the lapse is not covered - even if the act occurred while the policy was active. This is why tail coverage (extended reporting period) is essential when a firm closes or a principal retires.
- Occurrence: The policy covers claims arising from acts during the policy period, regardless of when the claim is filed. Occurrence-based E&O is rare and more expensive.
What E&O Insurance Does NOT Cover
- Intentional wrongdoing or fraud
- Criminal acts
- Bodily injury or property damage (covered by general liability)
- Construction means and methods (the contractor's responsibility)
- Claims arising from services outside the defined scope of the policy
- Fees or profits the architect expected to earn (lost profits)
Policy Limits and Deductibles
E&O policies have two limit types: per-claim limits (maximum payout per individual claim) and aggregate limits (maximum total payout for all claims in the policy year). Deductibles apply per claim and can range from $5,000 to $100,000 or more. Higher deductibles reduce premiums but increase the firm's out-of-pocket cost if a claim occurs. AIA B101 Article 11 allows the owner and architect to negotiate coverage requirements as part of the compensation structure.
Project-Specific vs. Firm-Wide Coverage
Some large or high-risk projects require project-specific professional liability insurance - a separate policy written solely for that project, which remains in force for the project's statute of limitations period (often 10 years). This protects both the firm's existing policy from a large claim and ensures coverage is in place for the project's full exposure period.
Key Exam Points
- E&O = professional liability insurance for design errors and omissions.
- Claims-made policies require the claim to be filed while the policy is active.
- Tail coverage protects against claims filed after the policy period ends.
- E&O does not cover bodily injury (that is general liability).
- AIA B101 addresses insurance requirements in Articles 2 and 11.
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