6 minute read
Providing services: errors and omissions insurance
The importance of the correct Insurance for your professional practice
If you are a business advertising and providing professional services, there is a level of accountability expected from a client, especially in cases where the services provided, or your personnel providing those services, require specific designations . When clientele places its trust in your expertise, you are expected to deliver on that promise; however, as with any professional service, there is a degree of risk associated with providing those services . This is especially true with design and consulting services where the risk profile greatly increases as the consultant recommendations have the potential to significantly affect a construction project – and any missteps have greater risk of resulting in financial loss for a third party . This is where errors and omissions insurance comes in .
Commercial General Liability (CGL) and Errors & Omissions (E&O)
A company may assume that if it has General Liability (GL) Insurance, it is covered . Commercial general liability insurance is designed to protect you and your business from a loss if you’re found legally liable for bodily injuries or property damage to a third party, caused by the product you sell or the service you provide; however, if you are providing professional design or cost consultation services, General Liability coverage is likely not adequate . GL policies generally contain an exclusion for any loss arising out of professional services rendered, something that is often overlooked when considering professional insurance requirements .
Errors and omissions insurance (E&O) otherwise known as professional liability insurance protects companies, their workers, and other professionals against claims of inadequate work or negligent actions . Traditionally, E&O is associated with financial loss of a third party . For example, with design/construction claims, if something goes wrong on a project, all involved parties can be named, even if they did not contribute to the loss event .
Kate Della Mora, a National Specialties Growth Leader with Marsh Canada Limited, based in Toronto, outlines the importance of remembering what E&O can do for these situations . “Typically, insurers have in-house specialized claims professionals, as well as lawyers on retainer with which they have good relationships . E&O gives your company more power in a situation where it is named in a suit, regardless of fault or liability . The Insurers’ personnel and connections have negotiating power to handle the claim in a quick, concise, and cost-effective way . If you do not have E&O insurance, you are left to your own devices and it can be a lot to navigate in terms of finances, time, and resources . E&O gives your company more power in a situation where it is named in a suit, regardless of fault . ”
Stepping back, E&O protects not just your company as an entity, but past and present employees within the company . It assures liability and accountability as a company that is guaranteeing a certain quality of service . It can also cover a company not just for errors, but for events such as missed deadlines, essentially anything that can alter a provided budget or the bottom line of a project, or that results in a financial burden to a company . A caveat to the above is contractual obligations or warranties/guarantees are not covered by E&O insurance, as these are considered “business risks,” and there is a moral hazard related to insuring
warranties/guarantees provided . However, E&O coverage might apply if the delay or missed deadline can be attributed directly to professional negligence or error .
Having E&O insurance is not a substitute for proper prevention procedures that a company should have in place, just as it does not aim to advertise that your company is likely to make errors in the services you provide . With every human-operated service there can be room for human error – this is a given . If your company carries E&O insurance, it shows that you have taken preventative measures toward the risks associated with the services you do provide, or even hidden risks which may not have been outrightly obvious during the bidding phase . These risks, like any, can be mitigated by having proper prevention procedures in place .
When providing key services that can have a huge impact on project cost, feasibility, and project design, it is critical to implement effective risk management strategies around the delivery of your work . The list below represents the top five risk management tips from an insurance provider’s perspective: 1 . Have a written standardized contract .
This should include limitation of liability clauses and hold harmless agreements in place, as well as dispute resolution clauses . 2 . Develop and use internal written documentation . This includes project files, change requests, scope of work amendments, authorizations, etc . 3 . Maintain continuity of personnel on projects, wherever possible ensuring that the same team is involved from project start to end . 4 . Have a formal process for claims management in place . When claims or issues are reported, this will allow prompt and early responses . 5 . Use standardized go/no-go checklists for project bidding and acceptance .
These should include a formal overview of opportunities vs . associated risks of projects . Although the quantity surveying/cost consulting profession is considered a relatively low-risk venture in terms of errors and omissions, estimating can still be a subjective field . Engineering and environmental services represent a greater risk to insurers when considering errors and omissions . A small misstep when providing such services can result in a substantial financial burden . Higher risk services such as these require a greater amount of attention to detail as well as attention paid to the procedures in place for quality assurance and control of the recommendation reports that go to clients .
Preventing risk also involves ensuring the experts sent into the field are adequately trained and have the appropriate knowledge to avoid these situations, and it is paramount they keep up with the most current legislations and codes . This is where continued education and development programs for your team can demonstrate to your broker or insurer that you take risk mitigation seriously . Furthermore, it shows your consultants are equipped with proper training and knowledge of procedures, and their reporting goes through a rigorous quality assurance procedure prior to being released to a client . E&O insurance is simply another prevention measure that proves to clients your dedication to risk management and it can ultimately assist in reducing the cost of your insurance premium .
In summary, a good insurance policy cannot mitigate poor practices . It is vital for any professional service organization to understand the risks its business units face, to initiate risk management strategies to mitigate those risks, and to ensure you have the correct strategic partner in your broker to have adequate coverage for those risks .
About the authors
Ross Huartt PQS, GSC is a highly qualified Professional Quantity Surveyor and recipient of the Gold Seal Certification in Estimation issued by the Canadian Construction Association . His international experience in New Zealand, Australia and the UK, have given him the opportunity to work on a diverse range of projects including civil, medical, education and commercial buildings . Ross applies his vast experience to his role as President of MBC Group . Kate Della Mora is Senior Vice President and the National Specialty Growth Leader for Marsh Canada Limited . Her experience spans more than 15 years of Specialty Errors and Omissions, Architects and Engineers, Construction Professional Liability, Single Projects, E&O Programs, Directors and Officers Liability, and Cyber Insurance . Kate graduated with an Honours Bachelor of Business Administration from Wilfrid Laurier University . She carries a CIP designation from the Insurance Institute of Canada, and is an active member of the Professional Liability Underwriting Society (PLUS) .
QS Online Cost Consultants Inc. Halifax, Nova Scotia p. 902 405-1504 halifax@qsonlinecostconsultants.com www.qsonlinecostconsultants.com
