The art of insuring architects

I HAVE always been interested in the visual arts. For five years I worked at Centenary College of Louisiana's art museum, and I also studied art history in graduate school. Perhaps my interest in art explains why I've felt drawn to design professionals, particularly architects, during my insurance career. Indeed, the best designs have genuine aesthetic appeal–while meeting all the practical considerations of professional architecture, of course.

I joined Querbes & Nelson 22 years ago. The agency was founded in 1914 by my grandfather. My brother and I, currently the agency's two principals, represent the third generation of family ownership. The agency long has been involved in contractors insurance, so perhaps it is not surprising that we also developed a specialty for design professionals. Currently we insure about 40 of them. While they include large firms with statewide oprations, most are sole practitioners who are involved in commercial projects, as opposed to condominiums, apartment complexes or other residential structures. Most also have private clientele, although some work for local parishes, schools and other governmental entities.

Most of our marketing activity is conducted in conjunction with AIA Louisiana, the state chapter of the American Institute of Architects. For instance, we advertise in its membership directory and take part in its conventions. Our agency, which once provided captive services for the association, has been endorsed by it for many years, although we do not have a proprietary program for it.

We've also found seminars useful for promoting ourselves as design-professional insurance specialists. We've held some in conjnuction with attorneys whom we've met through our interaction with AIA Louisiana. We've participated in others in which our insurance markets have furnished speakers. Referrals, however, are always our best source of new business. We've relied on them even more than usual this year, since AIA Louisiana's annual convention had to be canceled in the wake of Hurricane Katrina.

Another steady source of business consists of architects who have left their employers to go into business for themselves. When arranging coverage for such design professionals, we take care to point out that their policies will not give them prior-acts coverage for the work they did at the firm they left.

Underwriting and submissions

Our main markets for architects and engineers professional liability insurance are CNA/Victor O. Schinnerer, Lexington and Zurich. For hard-to-place risks, we turn to a couple of specialty brokers in our state.

When helping architects complete applications for professional liability insurance, we stress the importance of properly breaking out their billings. Fees for feasibility studies, landscaping, interior design or anything else not related to construction will be rated much lower than billings tied to a project that is built.

In addition to billings, insurers want information about the types of clients a design professional has. These include religious, commercial, industrial, residential and governmental. Insurers also like to see a good spread of business. Consequently, over-reliance on one large client–say, a hospital or restaurant franchise–is a concern for most markets. Should the design professional firm lose that client, its continued viability could be in question.

Certain clients always raise red flags with insurers. For instance, it can be difficult to arrange coverage for architects who do work for shopping malls, where it seems almost inevitable that a design professional will be drawn into a claim of some kind–even simple slip-and-fall claims. Architects that have more than minimal involvement with condominiums, which have been hit with a rash of lawsuits, can be almost impossible to insure.

One of the main challenges in our area is providing design professionals with coverage for environmental exposures. Here in the deep South, coverage for mold is a major concern–and has become more so in the wake of Hurricane Katrina. Normally, the architects who make up our clientele don't have that much to do with pollution-causing events. Following an environmental incident, however, a plaintiff's attorney typically will draw as many parties into the litigation as possible, including the project owner, the contractor–and the architect. In some cases, we can provide limited coverage for these exposures, but it's often not easy.

In the aftermath of Katrina, many of our clients have found work providing damage assessments for buildings. In doing so, our clients have been acting within the normal scope of a design professional, so it has not been necessary to amend coverage.

Underwriters want information about the types of contracts design professionals use. Standard contracts drafted by the American Institute of Architects are preferable, since they do not require design professionals to assume more liability than legally required. Often, however, design professionals have little choice but to use their clients' contracts if they want to bid on their projects. In that case, underwriters want to know whether the design professional's attorney reviews the contracts and how changes in contracts are handled.

Naturally, information about any prior losses will be required. The size and nature of closed claims must be disclosed, along with the status and reserves set on any claims that remain open. Design professionals who desire an unusually large deductible will have to furnish financial statements documenting that they have the wherewithal to cover it.

For new business, I try to send out submissions at least six weeks prior to expiration. Coverage usually can be arranged in a relatively short time, however, particularly for smaller accounts without problematic clientele.

Once clients are on the books, we work with our insurers to provide proper service. Contract reviews, which most of our markets provide, sometimes can enable a design professional to persuade a client to remove onerous provisions–for which the design professional might not have coverage anyway. In such cases, some non-insurance risk management technique may be the best answer to the project owner's concerns. Some of our markets also offer pre-claim assistance, enabling a design professional to report an incident and then get help in preventing it from becoming a claim or in minimizing its size if it does.

As I mentioned at the beginning of this article, there is a certain art to what architects do. The same might be said of agents and brokers who provide coverage for them. Knowledge of design professional's exposures and the markets that serve them are vital to the successful practice of this art–which is one I never tire of.

Carolyn Nelson is a principal of Querbes & Nelson, an agency founded by her grandfather in 1914. The agency has 38 employees and writes a complete range of personal- and commercial-lines insurance, as well as contract surety bonds, and life and health insurance.