Architects, engineers and contractors frequently face potential liabilities that place them at considerable financial risk because of the type and quality of services they deliver to clients. While this has been the case for the design and construction industries, the past year has troubled professionals with unforeseen challenges and exposures associated with the COVID-19 pandemic.
Once COVID-19 was declared a global pandemic by the World Health Organization in March 2020, many professionals had to adapt to working from home. This shift to remote working posed new and heightened cyber threats to architects and engineers, especially for those using personal computers and home networks to conduct work-related tasks.
“Architects, engineers and contractors are also dealing with the possibility of projects being temporarily delayed or shut down due to the pandemic,” said Steve Hansen, Vice President for Architects, Engineers and Contractors Professional (AE/CP) at Tokio Marine HCC – Cyber & Professional Lines Group. “As their projects progress, they still visit the job site and deploy their employees appropriately, but now they have the added challenge of being in compliance with COVID-related health and safety rules, regulations and expectations.
“There have also been challenges around the supply and pricing of essential building materials. Lumber and steel prices both went up in 2020 when production plants were impacted by the pandemic. That caused concerns on the underwriting side and among architects, engineers and contractors regarding potential construction delay claims and increased cost claims.”
In reaction to some of these challenges, Hansen has noticed design and construction professionals practicing strong risk management around their contractual language, especially in terms of force majeure clauses. Many professionals have taken the opportunity to shore up their contractual language to protect themselves against downstream risks associated with COVID-19 and potential future pandemics.
“From a contractual standpoint, architects and engineers need their contracts to contain a well-documented and thorough scope of services so their clients know for what exactly they’re responsible,” explained Jim Bechter, Senior Vice President for AE/CP at Tokio Marine HCC – Cyber & Professional Lines Group. “Our panel counsel always recommends that insureds include a statement in their contracts that clarifies the standard of care they’re obliged to meet in carrying out their profession.
“In the context of COVID-19, for example, will they be responsible for site visits? Many are concerned about the risk of virus transmission out in the field while they are in close contact with other people. Architects and engineers must consider how to properly reflect that in the scope of services in their contracts. Having their intentions properly reflected in the contract, both in terms of the scope of their services and their expected standards during the construction phase, is essential.”
In addition to shoring up their contracts, architects, engineers and contractors must thoroughly consider and re-evaluate how they plan for future projects, bearing in mind the ongoing uncertainty surrounding COVID-19 and the very high possibility that there will be other unique pandemics in the future.
“Prior to the pandemic, there was a trend in commercial office development, both for new builds and retrofits, where clients were seeking open concept floor plans. I think design professionals will need to reconsider how they manage floor plans in a post-pandemic world, thinking about the potential for future public health emergencies. Perhaps they’ll revert to individual offices until people become more comfortable sharing workspaces,” said Hansen. “They’re also going to have to look at [heating, ventilation and air conditioning] HVAC design for both existing and new buildings, again taking COVID concerns into consideration. There are many factors that mechanical engineers and architects will have to consider.”
In such an uncertain environment, having a strong professional liability insurance partner is key. Tokio Marine HCC - Cyber & Professional Lines Group has been underwriting professional liability for architects, engineers and contractors for over 30 years. There are four key elements that underwriters are seeking in a strong submission, according to Hansen. Those elements are an application form that details unique exposures, project lists (ongoing and prospective), resumes and loss runs. The more information that brokers can provide on those four elements, the better the underwriting outcomes will be for their clients.
“We’ve been very consistent over the years in our underwriting approach,” Bechter added. “We’re an open market to both wholesale and retail brokers, and we can offer both admitted and non-admitted coverage. We offer three tailored policy forms - Architects & Engineers Professional Liability, Contractors Professional Liability and Scientists Professional Liability – and we can handle a wide range of exposures that are deemed professional in nature.
“One thing that’s unique about Tokio Marine HCC - Cyber & Professional Lines Group is that when a risk is difficult for an insured or broker to describe, our underwriters are more than happy to take a conference call or a meeting with the prospective insured and their broker, so that they can tell us about their business. That has been a really successful strategy for us. It not only helps us understand the risk so that we can underwrite it better, price it more appropriately, and offer more competitive terms, but oftentimes, it also helps the brokers understand their clients better as well.”
