Perhaps you are a general contractor whose project has suffered a catastrophic failure due to a problem with an engineer’s calculations. Maybe you are an owner and you have just learned your new building sits partially on adjacent property due to an error by the surveyor. Or possibly you are a construction manager accused of mishandling safety governance, leading to an injury on the job site. These are just some of the many ways in which the players in construction projects may interface with professional liability. Understanding professional liability and how it can impact your business operations is a critical risk management tool.
A professional liability claim is a claim that involves a mistake in a technical or highly skilled area of a project. In construction “professional” service providers can include architects, engineers, land surveyors, construction managers, and others performing services that require advanced skill or professional training. Often, but not always, professional services are those performed by individuals that must be licensed by a state or governing board. Whether or not an act is that of a “professional” service provider is based on the nature of the work performed, not the performer’s title.
There are two important distinctions that make a claim of professional liability different from other claims. The first involves what a plaintiff must prove in order to win his or her case. The second is how professional liability claims are covered by insurance. Whatever your role on a project, a basic understanding of these variables is important.
Most commercial property owners have experienced a claim for premises liability. A typical case may involve a patron who files a lawsuit after being injured while on the property. To win, the patron must prove that the owner owed a legal duty to keep the premises safe, and failed to do so, causing an injury. The same basic elements apply to a professional liability claim, with one critical difference. An expert’s opinion is required to establish whether the “professional” failed in carrying out his or her legal duty.
In the basic premises liability case a defendant is held to the standard of care of a reasonable person under the circumstances. In a professional liability case, however, the standard of care is that of a reasonable member of the profession. In other words, a plaintiff claiming an engineer’s negligence must prove that the engineer’s conduct fell below the standard of care for a typical engineer. To establish that standard, a plaintiff must rely on expert testimony. Establishing the appropriate standard of care and demonstrating a violation could require many hours of work by the expert. This translates into significant expense for a plaintiff… an expense that is often not recoverable in the lawsuit.
In addition to considerations about the cost, a potential plaintiff must also be concerned about the availability of the professional’s insurance to cover that claim. Likewise, a professional service provider must understand the scope of their insurance, including those claims that are not covered. Policies contain numerous exclusions and exceptions that can take a claim out of the scope of coverage. If the claim is large, this could result in the professional being unable to satisfy a judgment.
Many insurance policies define professional services to limit the type of services to which the insurance applies. An architect or engineer may perform a variety of tasks as part of his or her engagement on a project. But tasks that do not require any specialized knowledge or advanced training may not qualify for coverage under a professional liability policy. For example, an engineer’s miscalculation of wind tolerances, leading to a partial collapse of a building during a storm, may qualify as negligence in performing professional services. By contrast, an engineer’s failure to supervise on-site movement of materials, leading to a personal injury when two trucks collide does not require a professional degree or designation. It is not likely to qualify as professional negligence.
Another consideration for both plaintiffs and professional service providers is the coverage period of the policy. Many general liability policies are “occurrence” policies, meaning they cover losses that occur during the policy period. By contract, professional liability policies are often “claims made” polices covering only claims actually made during the policy period. If a potential plaintiff waits too long to make a claim, they may find that professional no longer has coverage. An example would be where a professional service provider ceased operations years earlier.
Yet another consideration is the eroding or “wasting” limits of a professional liability policy. Unlike general commercial liability policies, a professional services policy often includes the cost of defense of the lawsuit in the overall policy limits. This means that the cost of the professional’s attorney fees to defend the case reduces the overall amount of insurance available to pay a judgment against the professional.
Understanding how a professional liability claim differs from a general negligence claim, and how it is covered differently by insurance, is critical to successfully defending or prosecuting such a claim. In short, professional liability claims are often more difficult to prove. Insurance coverage is available, but subject to certain limitations that narrow coverage.