Coverages to Consider When Starting Your Architectural or Engineering Firm

Stephen Watson, MBA, CISR, Account Executive
Venturing out on your own and starting a new firm can feel overwhelming considering all that needs to be accomplished before accepting your first client. From writing a business plan to determining a budget, selecting an office location, building a website, buying software, and setting up systems, one may forget the critical task of purchasing insurance.

This step, like many other areas of starting your business, needs attention and guidance from a specialized insurance broker.  As a design professional, you absorb tremendous financial risk when you oversee the construction, rehabilitation, or design of a building.  Insurance is a risk transfer mechanism used to protect your business from financial loss. The purpose of this article is to provide an understanding of coverages to consider when starting a firm and to introduce additional coverages you may consider adding as your firm grows.

Professional Liability: Professional Liability insurance, sometimes referred to as errors and omissions insurance, covers your defense costs and/or settlement payments should your firm’s professional services or advice be found to be inadequate, contain errors, or fail to meet specifications.  It is essential to work with an insurance company and broker who specialize in your industry and can provide additional risk management services such as contract reviews, webinars, and education credits.

The cost of Professional Liability insurance varies depending upon your projected annual revenue, your areas of discipline, the anticipated project types, and policy limits. Typically, most contracts require a limit of $1 million or higher.

Business Owners Policy (BOP): A BOP includes multiple coverage sections including losses related to:

  • property damage
  • business income and extra expense (if business operations are suspended)
  • lawsuits and claims related to property damage, bodily injury, personal injury or advertising injury resulting from your firm’s actions or location

The premium is based upon your location, policy limits, estimated payrolls, and other factors specific to your operations. Typically, most contracts require at least a limit of $1 million per claim and a $2 million aggregate.

Other Coverages to Consider: As your firm grows and you add even one employee, there are additional coverages to consider, some of which are required by law.

  • Workers Compensation is required by law in most states to be carried by a business with employees. Workers compensation provides coverage for employee-related accidents and employer liability lawsuits brought against the company for a work-related injury.
  • Cyber Liability helps your firm survive data breaches and cyber attacks by paying for recovery and notification expenses. It is essential to run system backups multiple times a day or at least once a day, as a cyber policy will not be of much benefit in data restoration if the backup data is old.
  • Employment Practices Liability covers your firm for claims made by employees for alleged discrimination, harassment, wrongful termination, and other employment-related issues. Some insurance companies offer training or have a help line for you to call if there is an issue. This coverage becomes essential as your firm grows.
  • Commercial Auto covers company-owned vehicles from liability or physical damage when involved in an accident. Other coverages can be added to include employee-owned autos used for business, leased vehicles, rental cars, etc.
  • Umbrella Coverage protects your firm from major claims and lawsuits by providing additional limits over your general liability, auto liability, and employer’s liability insurance.

As you can see, there is insurance available for just about any risk.  Having a knowledgeable insurance broker who also serves as a loss prevention advisor can be far more beneficial to your bottom line than merely looking for the cheapest premium.