? Bodily Injury Exposures.

More than 15 percent of claims against design professionals involve bodily injury. Typical bodily injury plaintiffs include construction workers killed or injured during construction and building users killed or injured in an event that can occur at almost any point in the life cycle of a structure.

Property Damage Exposures.

Another significant source of claims arises from direct damages to a project component that allegedly results from a design error. A structural collapse or water penetration damages are examples.

? Economic Loss Exposures.

Economic loss claims are the biggest area of exposure for design professionals. In essence, design professionals may be held liable for the economic losses of their client or others for an almost unlimited variety of contingencies that often arise during the planning and implementation of a construction project. Common examples are construction cost overruns, project delays, building systems that do not meet owners expectations, or failures in building materials or systems.

? Personal Injury Exposures.

Design professionals can be the subject of professional liability claims for discrimination or contract interference related to advice they may provide to their client regarding the capability or performance of independent contractors and subcontractors.

Another distinctive characteristic of claims exposures that design professionals face is the length of the claims tail. Potential exposure to claims extends for the entire life span of a structure.

A bridge or building can collapse many years after design professionals and builders have completed work, resulting in injury or death as well as damage to the project. Design professionals are still subject to lawsuits even though the collapse may be the result of years of poor maintenance or building modifications subsequent to the original construction.

While special statutes of limitations have reduced this long-term exposure, the tail–the average length of time between the rendering of services and when a claim is made–is significantly longer for design professionals. Consequently, professional liability policies for design professionals have always been written on a claims made basis while many other professional classes, originally written on occurrence forms, were later switched to claims-made forms during the tight underwriting cycles of the 1980s.

The design industry is a diverse universe of business entities that includes tens of thousands of extremely small practices, national design firms with thousands of employees and integrated engineer/constructors with annual revenues in the billions.

These entities provide a wide range of planning, design and construction phase services in many specialties including: architecture, engineering (common disciplines are civil, structural, electrical, mechanical) land surveying, landscape architecture, construction management and project management. A large construction project will often involve a dozen or more independent design firms.

Principals and key employees are generally licensed by one or more states as registered architects or professional engineers with a specialty in an engineering discipline. Small firms tend to offer services in a single discipline. As firms become larger they often become multi-disciplined.

Traditionally, design firms offer planning and design services, including the preparation of construction documents that define the project to be built by a contractor.

During the construction phase, the role of design firms is limited to administrative tasks in which they observe the contractors work to determine if the contractor is meeting the requirements of contract documents.

Design firms do not generally perform any construction. In fact, until 1981 it was unethical for members of the American Institute of Architects to offer design-build services.

Over the past decade, the breadth of services offered by design firms has expanded dramatically in response to changes in the way construction projects are delivered.

The traditional project delivery approach, with its distinct lines of demarcation between the design and construction, remains the most common type. However, design-build and “at risk” construction management have emerged to meet the needs of owners who want a single entity to be responsible for both design and construction.

Under these project delivery methods, design professionals have the option of assuming a number of new roles such as a design subcontractor working for the general contractor or alternatively becoming a true design-build contractor with legal responsibility for both design and construction.

Some design professionals are expanding their roles by providing project financing or assuming ownership of the project then leasing it back to the client.

Design professional services would traditionally end when construction was complete. Today, design professionals may stay involved much longer by accepting facilities management contracts to provide services for the full life cycle of the project or by accepting a contract to operate the facility on a long-term basis. The impact of these changes on the liability of design professionals and their insurers has been inescapable.

?Liability exposures are less predictable because the standard of care applicable to these new roles and services has not yet been outlined in any standard industry contracts or defined by the courts.

?As design professionals assume the role of contractor as well as designer, the broad coverage provided under traditional design professional insurance forms may create underwriting problems for carriers. A number of additional exclusions may be required in areas such as faulty workmanship, liquidated damages and cost overruns.

?Design professionals have traditionally assumed limited risks beyond those covered under professional liability or casualty risk policies. As they assume these additional roles, design professionals often assume for the first time significant financial or business risks which are not transferable to carriers.

Changes in the nature and structure of practice will undoubtedly result in this line of professional liability insurance remaining one of the most complex as underwriters and brokers strive to define the appropriate degree of coverage for design professionals.

Homer M. Sandridge is an executive vice president for Kemper Professional and the manager of Kemper Professional's Construction Design Group in Columbia, Md.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, November 12, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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