-Partners in Practice -

Not everything in professional practice is as neat and tidy as it might be. There are always improvements to be made, practices to be strengthened, loose ends to be tied. But there is one end that seems to be loose more often than not. It has to do with the need for close attention to the insurance protection maintained by your consultants.

This is one of those issues that tends to work its way to the bottom of lists already too long. "Let's do something about the latch before the horses get out of the barn," is a less than compelling call to action when there are more immediate problems to be solved. On the other hand, the alternative to a few simple precautions now can be costly surprises later on. None of us needs any costly surprises.

It is not unreasonable to require your consultants to maintain adequate insurance protection. In fact, there are some sound business reasons for you to make certain you do. Nor is it unreasonable for you to insist upon appropriate coverages and limits of liability. You have a direct interest in the consequences of the added risk your consultants bring to the design team.

Assume, for a moment, that one of your consultants turns out to be responsible for a serious loss. Absent a financial capacity to respond on your consultant's part, you may find your deductible and your insurance protection on the line, instead. In the search for a "deep pocket" out of which the plaintiff might be made whole, the argument before the court is likely to focus on your responsibility for coordinating the work. If the loss is serious enough, it would not be surprising for a jury to find this argument persuasive.

This is not the end of the potential fallout, however. The applications for insurance used by most professional liability insurers ask whether you obtain Certificates of Insurance from your consultants as a matter of routine. The reason? No insurer wants to find itself in a position of potential liability for the negligence of consultants who ought to be separately insured, but are not.

One carrier even goes so far as to grant a premium credit to applicants who respond positively to the certificates question. But, because the credit is issued in reliance on your affirmative representation, it can be a double-edged sword. Should that reliance later turn out to have been misplaced, unsettling questions may be raised about the extent to which the company may be liable for a loss attributable to a consultant from whom you had neither requested nor received a Certificate of Insurance.

What about the other carriers? They are going to be less than enthusiastic about finding themselves liable for a loss that would not otherwise have been theirs. What they are likely to consider to be a costly degree of inattention to management on your part may well be reflected in the judgments they make about the advisability and cost of insuring your firm in the future.

It is not difficult to establish insurance requirements for subconsultants, but it is necessary to have something of a feel for what might be reasonable and what not. In addressing this issue, it is important to keep in mind that the decisions your consultants make about the adequacy of their insurance protection are based on internal considerations, just as yours are. Those decisions represent a business judgment on their part as to how best to protect the assets they have at risk within the constraints of affordable cost.

You might also keep in mind that professional liability insurance is not the only concern. You need assurance of current workers' compensation, general liability, and automobile liability insurance, as well. You may even want to require evidence of valuable papers coverage to protect against the risk that your consultants may not otherwise have the financial wherewithal to reconstruct work in progress that may somehow be destroyed.

The place to establish insurance requirements for your consultants is in the written agreements you prepare to reflect your mutual understandings. Subject to the advice of your attorney and to any contractual commitments you might have to your clients, your requirements might be stated as simply as this:

Prior to initiating work under this Agreement, Consultant shall deliver to Architect (Engineer) Certificates of Insurance evidencing the following insurance coverages: Professional Liability; Workers' Compensation and Employers' Liability; Commercial General Liability, including Blanket Contractual Liability, Broad Form Property Damage Liability, and Completed Operations; and Automobile Liability, including Non-Owned and Hired Automobile Liability. All such Certificates shall be kept current for the duration of this Agreement and shall provide for an unqualified 30-day notice to the Architect (Engineer) in the event of cancellation, termination, or nonrenewal of Consultant's insurance policies.

These are minimum requirements. They rely on the judgment of your consultants--as to the adequacy of the limits of liability they carry and the economic feasibility of continuing to purchase professional liability insurance for years after your agreement with them expires. But they could easily be modified to incorporate limits at whatever levels you believe to be necessary. This is something you will want to consider carefully, however, for your decisions about the insurance protection you expect your consultants to maintain are directly related to your decisions about the size of the firms you choose to work with.

None of this will be worth the paper it is written on unless you administer compliance. It is neither difficult nor time consuming to do so. Certificates of Insurance are relatively simple documents, and your consultants can cause them to be issued with as little as a telephone call or a transmittal memorandum to their insurance brokers.

You can set this process in motion with a straightforward, standard letter reminding your consultants of the requirement for certificates and requesting that they be issued promptly. You can use the same letter to follow through in the event that their reissuance upon renewal or replacement of one or more of the policies is somehow overlooked.

As a final precaution, you might also consider sending us copies of your file of certificates so we can review them for adequacy. They tend to vary in the degree of protection they afford, and we would be pleased to suggest steps you might take to strengthen those that are less comprehensive than they might be.

For inquiries or problems please contact us via e-mail at Earleen Thomas or call us directly at 800-705-7742.
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