Jared Maxwell, Ames & Gough
For architecture and engineering firms, professional liability insurance is a cornerstone of risk management. These policies are almost always written on a claims-made basis, making timely claims reporting one of the most critical—yet often overlooked—requirements for preserving coverage. In practice, how and when a firm reports a claim can have just as much impact as the claim itself.
Equally important, and often underused, is the pre-claim assistance built into many professional liability policies, which can help firms address issues before they escalate.
Unlike occurrence-based casualty insurance policies, a claims-made liability policy is triggered only when a claim is made against the firm and reported to the insurer during the policy period or within a stipulated extended reporting time.
This creates a strict timing requirement. If a claim is reported late—even by a short period—coverage can be denied outright, regardless of claim merit or whether the firm has practiced sound risk management and been considered a “strong risk” by the insurer. Policy language on any extensions for claim reporting vary by insurer, but it is often vague, leaving potential for denial or dispute. As such, design firms should strive to report all claims immediately and within the policy period.
The definition of a claim for firms is broader than many realize. It includes lawsuits, but also written or even verbal demands for damages, professional error allegations, tolling agreement requests or certain contract disputes. Many policies also allow reporting of circumstances that may give rise to a claim, where both coverage protection and pre-claim assistance begin to intersect.
This is where breakdowns often occur. Managers may try to resolve issues informally—such as a design discrepancy, coordination issue or dissatisfied client—without involving insurance. While well-intentioned, this approach can backfire. If the issue later escalates into a formal claim and was not reported when first known, the insurer may deny coverage. More importantly, by not reporting early, firms can’t leverage pre-claim assistance that can be instrumental in preventing escalation altogether.
Early Intervention
Take advantage of pre-claim assistance that allows firms to engage an insurer at the first sign of trouble. Many professional liability carriers offer access to experienced claims professionals, legal counsel and technical experts who understand firm exposures. They can help evaluate situations, guide communications and develop a damage mitigation strategy. In many cases, early intervention can resolve issues before they become claims—saving much time, cost and disruption.
Some policies also include rectification expense coverage that may reimburse cost to correct a design error before it results in a third-party claim. While typically subject to insurer approval and sublimits, the coverage reinforces early engagement value. Addressing a problem pro-actively is almost always more cost-effective than defending a claim later.
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Timely reporting is especially important given the long-tail nature of firm exposures. Claims can arise years after services are performed, often tied to construction defects or project performance issues. Because policies are claims-made, the active policy when a claim is made and reported is the one responding—not the policy when work was performed. This makes continuity of coverage and disciplined reporting essential.
Access to Resources
A particularly valuable tool is the notice of circumstances provision. When a firm becomes aware of a situation that could lead to a claim, such as a known design issue or emerging dispute, it can notify the insurer during the current policy period. If done properly, any future claim arising from that situation is treated as having been made during that earlier policy period, preserving coverage and often triggering access to pre-claim resources.
From a best practices standpoint, firms should establish clear internal protocols, educate project teams on what constitutes a reportable matter, involve a broker early and err on the side of reporting. In doing so, they not only protect coverage but also unlock the full value of a policy.
In the A/E world—where projects are complex and disputes inevitable—professional liability insurance is more than a financial backstop. When paired with timely reporting and proactive pre-claim assistance, it becomes a powerful tool to manage risk, protect client relationships and preserve a firm’s long-term success.
Jared Maxwell is senior vice president and partner of insurance broker Ames & Gough. He can be reached at jmaxwell@amesgough.com.
Source: www.enr.com
