There can't be many things that Pei Cobb Freed, Richard Meier, Alexander Gorlin, and FXFowle have in common, except that they all buy insurance through Greg Kumm. Kumm is an independent broker, meaning he can sell insurance from any underwriter, and he counts some 400 architecture firms among his clients. Though architects need workers' compensation insurance (protection if an employee slips and falls in the office) and an “office package policy” (if it's a visitor who tumbles, or there's a fire or a burglary), the main focus of Kumm's practice is providing errors and omissions coverage—the insurance that covers claims arising from provision of architectural services. Amazingly, he says, about a third of policies are subject to claims in a given year, and when there are payouts, they average more than $200,000. No wonder, he says, that insurance may be the third largest expense after salaries and rent for many architects. Expect to pay at least 2.5 percent of your annual billings, and that's for $1 million in coverage—which may not be enough.
Don't buy the cheapest insurance. Out of more than 1,000 U.S. property and casualty insurance companies, only about a dozen write liability policies for architects, Kumm says. Still, it's important to select the right one from that dozen. “We do our due diligence, to make sure a company has the manpower and expertise to properly insure architects—some just flat-out do it better than others,” he says, adding that “one company, Victor O. Schinnerer, an underwriter for CNA insurance, has been consistent and reliable for 50 years, and a lot of our business goes to them.”
Think about how much coverage you need. Most architects carry $1 million in coverage. But given the size of some claims today, most firms should be looking at limits of $2 million or more, Kumm says. Some clients are even requiring architects to have $5 million in coverage (which costs roughly three times as much as $1 million). If you don't have $5 million in coverage, you could lose commissions to firms that do. Some architects hope that a project policy— covering a specific job—will be the answer, especially if the client is willing to pay part of the premium. The reality is that very few insurers offer project policies. When they do, the cost is high, and clients aren't lining up to pay.
Be especially careful if you design condos. Architects often get caught when condo buildings are defective. The developer promotes the building as very high quality, of course, but he may not deliver that quality because of cost. When the building sells out, the developer—almost always a limited liability corporation—is dissolved. When a unit owner has a problem with the building, there's nobody to go after but the architect, who remains liable for errors and omissions. Insurance companies know this, so a firm that does lots of condominium projects is going to pay more for insurance than a firm that doesn't. The best advice is to “qualify your client,” Kumm says, meaning don't design a condominium building unless the developer has a record of doing quality projects.
Plan for the future. Under a normal errors and omissions policy, coverage is available only if a policy is in force when the o. ending services were rendered and when the fault is discovered and a claim is made. In New York and other states, where the statute of limitations for negligence claims isn't clearly established, you may have to have a policy in force for the rest of your life. If you're thinking of retiring or closing up your practice, you'll need to insure against possible future claims. Speak to your broker about a “tail” policy that covers you for claims based on past practice.
If it's broke, call your broker. “We advise our clients to contact us if there is a claim. We'll call the insurance company, which will then begin investigating; answer the summons (if a suit has been filed); hire defense council … whatever is necessary to protect you. But we still serve as the conduit, quarterback, and point of contact,” Kumm says. So it helps to like your broker.
Fred Bernstein studied architecture at Princeton and law at New York University and writes about both subjects.