Broker and consultant Ames & Gough has weighed in with its professional liability market report for 2012.
The availability of limits is not a constraint for most design professional firms, Ames & Gough reports. "We've seen the ability to secure upwards of $50 million of limits."
But here's something that really grabbed my attention.
"What has become more of an issue is the demand by some owners that their architects and engineers carry much higher limits," write Ames & Gough. "More often we are seeing demands of $5 million of limits versus the traditional request for $1 million or $2 million."
The report adds that many firms are complying with the increased requirements by simply purchasing higher limits, while others secure so-called "single-project excess limits."
Finally, many firms continue to carry so-called "split-limit" policies, write Ames & Gough, meaning that the aggregate limit is a multiple of the per claim limit. "A typical example would be a $2 million per claim limit and a $4 million aggregate limit."
I wonder, what's the least costly way to buy excess coverage? And what's driving the owners' requests for more coverage? Reality of the liability that could exist? Or something else?
Ames & Gough's president, Dan Knise, quickly got back to me with answers to the questions.
The higher limit requests seem to be driven by concerns related to possible claims, complexity of issues that can arise, etc. Also, there has been a focus on the increase in defense costs, meaning that $1 million (remember defense costs are in limits for professional liability insurance).
In addition, Knise wrote, "we sometimes wonder if these owners didn't all 'attend the same risk seminar' where an attorney suggested $5 million??"
"The most cost-effective way to buy this coverage if you have more than the occasional (1 or 2 per year) client needing higher limits is to buy excess liability coverage above your primary practice policy," Knise continued. "However, if only a project (or two) per year needs higher limits then the project-specific excess approach can be cost-effective."
The split-limits approach isn't really driven by contract compliance/owner requests, but by a desire by the architect or engineer to have additional limits available for multiple claims should limits be exhausted on a single or series of claims, Knise wrote.
For example, he said, an architect with a $2 million per claim/$4 million aggregate limit would have the insurance to pay a $2 million claim and still have insurance if another arose. "Without the split limit, he or she would have no remaining coverage."
More about this soon in future ENR Risk Reviews.