Engineers’ everyday work can involve tasks such as inventing, designing, analyzing, testing, and building; be it in relation to structures or machines or city layouts or other complex systems.
The range of skills the term “engineer” covers is as diverse as the range of risks the job itself includes.
With such diversity in risk, insurance coverage can be complicated in the field of engineering. One of the several types of insurance available to engineers is professional liability insurance.
What is Engineer Professional Liability Insurance?
Professional liability covers the engineer’s legal defense in the event of any “errors or omissions.”
If a client claims negligence caused them financial loss, professional liability insurance covers the engineer’s attorney fees, court costs, and settlements/judgments.
Some examples of allegations that could be made by clients towards engineers include:
- Errors/omissions (failing to submit a change order or a making mistake in calculations)
- Failing to deliver on contracted services (missing deadlines, going over budget, etc.)
- Misrepresentation and/or poor workmanship (designing something that doesn’t work or doesn’t work correctly/as described)
- Failing to meet industry standards (designing a building that doesn’t comply with safety codes)
Professional liability insurance holds many potential benefits for engineers: coverage for defense costs, personal injuries, and negligence and claims against previous services.
Because these allegations are all too common and expensive to defend, professional liability insurance is essential when it comes to coverage in this industry.
With such diversity in risk, insurance coverage can be complicated in the field of engineering. One of the several types of insurance available to engineers is professional liability insurance
Why Do I Need Engineer Professional Liability Insurance?
As an engineer, professional liability risks are significant. Even the best in the field aren’t immune to mistakes. A safety concern can arise or an entire project can be thrown off by a small mistake, miscalculation, change of building plans, or error in judgment.
Miscommunications can happen between engineer and designer, resulting in the (expensive) purchase of materials that won’t work for the project.
This can create an upset client ready to sue for negligence. Lawsuit costs are high- up to hundreds of thousands of dollars- and could be very detrimental to your business.
Professional liability insurance covers legal defense fees and can help pay the settlement amount if the court rules in your client’s favor.
The potential issues that could result in legal action can vary, but no matter the accusation, professional liability insurance can protect you.
The coverage will save you hundreds of thousands of dollars should you ever be facing a lawsuit and will give you peace of mind daily in your projects.
But Do I Really Need Engineer Professional Liability Insurance?
Taking on extra expenses can cause frustration and leave you wondering if you really need to be spending the money on something you may never use. It’s difficult to imagine something going so wrong with a client that you end up in court.
But data shows that 43% of small business owners have been involved in or threatened with a lawsuit. The costs associated with those lawsuits are even more astounding than that percentage.
The median award for business negligence in 2017 was over $180,000— but the average was over $1.5 million! Without professional liability insurance, these costs could crush your business.
What Does Engineer Professional Liability Insurance Cost?
The cost of professional liability insurance varies and depends on a few factors, but if the unthinkable happens and you are facing a massive lawsuit, the monthly premium for a professional liability policy will be more than worth it.
The median cost of professional liability insurance for engineering business is $1500-$2,000 per year. Most policies’ deductibles are around $2,000, with policy limits of $1 million per occurrence.
Premiums can vary, especially if an engineer opts for higher coverage. This is important to note because if a lawsuit does occur and the settlement amount is $2 million, but your policy limit is $1 million, you will be responsible for the remaining $1 million.
How Much Engineer Professional Liability Coverage Do I Need?
Some business owners will decide how much coverage they want based on how likely they think it is that they will be sued. But some clients will specify the desired amount of insurance in their contract.
There are also general factors insurers consider when figuring out your professional liability costs/needs. Some of these factors are business size, location, and claims history.
- Business Size
The size of your business can affect your liability coverage cost in a couple of ways. First of all, your insurance premium quote will be partially based on your revenue (higher revenue, higher premium).
Secondly, since most professional liability insurance covers your staff, the more employees you have, the higher your premiums. So, higher revenue earners and larger sized companies can expect to carry more coverage than a smaller company.
- Location
Some states won’t issue a license in certain professions without professional liability insurance being obtained.
Additionally, state laws can impact your rates by allowing higher settlement awards in lawsuits. Since insurers must cover this additional cost, businesses in such states will pay a higher premium for professional liability insurance.
- Claims History
Prior claims are considered by insurers when deciding your professional liability coverage costs. These prior claims indicate whether your business is a desirable risk for your insurer.
Expect for insurers to look at at least five years’ worth of claims, and expect your insurer to charge additional premiums based on this claims history.
Not every claim will result in an increase in cost. Smaller claims will have a lesser effect on cost than severe/frequent claims.
Can I Do Anything to Reduce the Cost of Engineer Professional Liability Insurance?
It is logical to want to keep expenses minimal when running a business. However, professional liability insurance is a critical policy to have for anyone in the engineering field.
Not only do some engineers work with expensive materials, but many engineering projects cost millions of dollars and/or affect many lives. Liability coverage is not something you want to be without.
Reducing your monthly premium by increasing your deductible is one way to lower your upfront costs.
However, keep in mind that this will actually mean more out of pocket costs if you are faced with a lawsuit, as you have a higher deductible to meet before your coverage kicks in.
If you have a high risk for expensive claims or are concerned you won’t have cash available to cover your deductible in the event of a claim, opt for the lower deductible and higher premium.
One strategy for obtaining a lower premium is implementing a Risk Management Program (RPM).
RPMs can help you convince your insurer to consider your company a lower risk, resulting in some additional discounts.
Risks are identified and procedures are developed to address and lessen those risks. This strategy is effective in reducing the likelihood of a lawsuit.
All employees are trained the exact same and therefore know how to respond in difficult situations and identify possible mistakes.
Final Thoughts
No matter the specialty, the field of engineering carries substantial risk.
An engineer professional liability insurance policy is a worthwhile investment in protecting the engineer/company from allegations and hefty legal fees associated with a lawsuit and potential settlement.
The premium is a small price to pay, considering the massive peace of mind payout you’ll receive should you ever need to use the policy.