The Problem with “Duty to Defend” Provisions
Jan 5, 2010 Business Insurance
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Professional Liability policies for Engineers and Architects are considered “indemnification policies” literally meaning that the insurance carrier agrees to “make whole” any party who suffers injury or loss as a result of your “negligent deliverance of professional services” up to the available limits of the professional liability policy. [Negligence, of course, is the "operative" word meaning that your standard of care is the "ordinary man" standard as opposed to perfection.]
Unfortunately, too few drafters of contracts used to engage the professional services of engineers and architects understand that, unlike a General Liability policy’s “additional insured” provision which provides affirmative defense of a third party, a Professional Liability policy has no provision within the policy to provide “defense” to anyone other than the design professional him/herself.
Owners usually haven’t been educated well enough in the subtle implications that distinguish a general contractor’s general liability insurance policy vs. an engineers’ or architects’ professional liability insurance policy.
Perhaps you are wondering why this is not insurable. Professional liability is brought on by “actual or alleged negligence” and solely benefits the design professional. To grant affirmative defense to a third party due to alleged negligence is outside the policy’s provisions. Professional liability policies will compensate an owner for costs accrued in their defense as long as the architect or engineer was actually negligent.
Additionally, ALL professional liability policies for engineers and architects contain a CONTRACTUAL LIABILITY exclusion that states that the only contractual coverage granted by the policy is “such liability that would have existed in the ABSENCE of a contact.” [In short, this means that even without a contract the Design Professional is always held to the negligence standard of care.]
What should you do? Strike the word “defend” from the contract and make sure that the balance of the indemnity provision is based on your “negligence.” “Piece of cake — right?” Now, what do I REALLY do when the owner [or their attorney] balks at removal of the word “defend” from the contract?
Timothy Esler, CPCU, is a Principal with Fenner & Esler Insurance Agency, a boutique insurance brokerage and risk management organization representing architects and engineers countrywide. Tim’s complete original articles are published in The Zweig Letter.
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Tags: Architects, architecture, Business Insurance, construction, contractors, Contracts, engineering, engineers, finance, insurance, law, legal, Liability, Professional Liability Insurance
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