distinctive choice

A Jardine Lloyd Thompson Information Article

PROFESSIONAL LIABILITY INSURANCE FOR LAND SURVEYORS

By: Roger A.H. Brett

Why Professional Liability Insurance?

When Land Surveyors in North America attain their degrees in the various Universities throughout Canada or U.S.A. they are made aware of the litigious nature of the North American Owner or North American public in general. Surveyors from other countries around the world who emigrate to North America may not be aware of this until it is too late. In the many years that the writer has specialised in the area of Professional Liability Insurance, he is still mystified at the lack of awareness by the average Surveyor of:

  1. The potential in the size of an award for damages;
  2. The amount of legal and adjusting costs that can be incurred in defending a potential claim;
  3. The differences in coverage offered by the policies that are available; 
  4. The amount of personal trauma incurred as a result of a claim against the Surveyor.

For those Surveyors who may be considering purchasing this class of Insurance or may just wish to review their coverage, the writer will attempt in this article to:

  1. Explain the application form and its purpose;
  2. Provide "pointers" for completing an application;
  3. Briefly review the policy insuring agreements;
  4. Briefly review the policy exclusions;
  5. Recommend what to look for in an Insurer;

1) THE APPLICATION FORM AND ITS PURPOSE:

The application is a signed statement of facts and actually forms part of the policy. The application provides the underwriter with a breakdown of the applicant's operations, fee income and claims history, if any. Usually a signed and dated application is valid only for a period of 30 days.

2) POINTERS IN COMPLETING AN APPLICATION:

Applicants should complete the applications very carefully. The name of the applicant and or the company name that the applicant operates under, should be correctly noted on the application and it should include all subsidiary companies where the applicant has more than a 50% interest and all holding companies and office management companies. There is generally no premium charge for the additional names, but you will want the your policy to provide legal and defence costs for these names. Predecessor firms in which the applicant or any director or officer had previous involvement should also be identified under the application as a former name to be noted on the proposed policy. Details of each licensed Surveyor will be required, and a list of their local Provincial Association designations, including whether or not, they are a Canada Lands Surveyor. Insurers will also want to know how many staff you have and how many are Professional Engineers.

When filling in the question on gross billings, the last fiscal year end fees should be used, as these are generally readily available from your accountant. Note separately, any fees for work performed or located in the USA as these are rated separately, most times at twice the Canadian fees rate. The application also asks whether the Surveyor has been involved in bartering instead of receiving a fee for any work done on a project.

The application will now ask for a breakdown of the applicant's fees relative to the type of surveying he/she does. The application breaks out the type of work done into eleven categories, and these are all rated separately. The writer would strongly recommend that Surveying Companies utilise computers to accurately break down the fees into the various areas of work done by the firm. The application also asks for the fees earned from Consulting Engineering work, which requires the stamp of a Professional Engineer. At this point in time, fees in this category are rated at twice the rate than for instance, the fees earned by a Surveyor doing legal surveys. Each area of work is rated according to the risk that has been assessed by the Insurers over the years. 

The applications then asks for details on any claims or incidents that might lead to a claim at a future date, that you may have had in the last five years. Insurers will want to know how much was paid and any legal and adjusting costs that may have been incurred. Claims history questions should be fully answered with full explanations and information on any claims being attached to the application together with the latest status of the claim. 

Applicants should always ask for quotes for various limits with various deductibles, as this will enable an applicant to select the type of policy that will best suit the potential for suits and the company budget. Generally, insurers will restrict the maximum size of the deductible to 1% or 2% of the total gross fees subject to any local Provincial Association requirements. Look to selecting the highest limit you can afford and reduce the policy cost by carrying as high a deductible as is affordable or allowed by the Insurer. The application should then be dated and signed by and sent back to the broker to process.

3) THE INSURING AGREEMENT:

The insuring agreement defines the Insurer's duties and includes the Insurers obligations to pay damages and defend "you" the Insured. Most policies pay "on behalf of the insured" all sums which the Insured shall become legally liable to pay as damages arising out of a claim". This applies as long as the Insured's liability is the result of a negligent act, error or omission in the performance of professional services for others, in the Insured's capacity as a Land Surveyor or in certain circumstances, Engineering if the policy has been endorsed to include Engineering activities. Some policies refer to "services customary to a Land Surveyor", the question can arise as to what is "customary". Some policies may use the more restrictive wording, "professional services as described in the Declarations page of the policy" and some other policies state "services for which the Land Surveyor is qualified." There could be questions as to whether coverage would apply if a claim arises out of a discipline that is not described in the policy declarations or the qualifications of the Land Surveyor are in question for the category of service being provided.

The policy coverage is also subject to certain criteria:

  1. that notice of the incident or claim is first made to the Insurer during a valid policy period;
  2. that the Land Surveyor was not aware of an incident or claim at the start of the policy period.

The applicant should advise their broker to extend the activities described in the policy and amend the exclusions if the insured is involved in such areas as Construction Management, Project Management or Forestry Consulting, or if they use contract employees. The Association sponsored policy, has a number of the extensions built into their wording, such as contract employees.

The applicant should also look at the policy defence agreements. Most Canadian Insurers provide first dollar defence; where the Insurer pays ALL legal and adjusting costs without application of any deductible. This can represent significant dollars, sometimes up to 50% of the sums of money the Insurer is called upon to pay. The writer has seen claims in Canada where the legal/adjusting costs incurred have exceeded $1,500,000.

The territorial limits of the policy should also be checked. Some Insurers provide cover only in Canada, others will provide world-wide cover provided suit is brought in Canada or the USA. If coverage is provided outside of Canada, the applicant should be aware that the policy will be endorsed, so that the deductible will apply to defence and adjusting costs. Another restriction found in most policies where coverage extends outside of Canada is that the limit of liability selected, includes defence and adjusting costs. The Association sponsored policy covers defence and adjusting costs without applying any deductible, and the legal and adjusting costs are in addition to the limits of liability, if limits of $2,000,000 per claim or less are selected.

4) THE EXCLUSIONS:

The exclusions in a errors and omissions policy basically address:

  1. Uninsurable business risks;
  2. Uninsurable hazards;
  3. Coverage provided by other types of Insurance policies;
  4. Certain exposures that may be covered for an additional premium by endorsing the basic policy form. i.e. extending the policy to cover work that requires the stamp of a Consulting Engineer.

The Association sponsored policy has only got the following exclusions:

  1. Claims resulting from fraudulent or criminal acts;
  2. Insolvency or bankruptcy of the Insured;
  3. Claims resulting from the performance of services which, by the provisions of any applicable Federal, Provincial, or Municipal law, statute, legislation, or regulation are required to be performed by a professional engineer, (unless the policy has been endorsed to extend coverage to include Consulting Engineering); 
  4. Claims arising out of the ownership, maintenance, use or operation, by or on behalf of the Insured, of any aircraft, watercraft or motor vehicle;
  5. Claims arising out of the nuclear energy hazards as defined in the Nuclear Energy Exclusion Endorsement that is attached to the policy;

5) WHAT TO LOOK FOR IN AN INSURER:

When buying insurance consider the three "C's", policy COVERAGE, COST, and the insurance COMPANY. While all of these are important, the reputation and financial position of the Insurer is the most important. If the insurer becomes insolvent and there is a serious claim that is not paid, the future financial security of both the individual Design Professional and the applicant company may be destroyed. The Insurer's financial position is of great importance when arranging professional liability insurance. While property insurance claims (such as fires) are usually settled in months, professional liability insurance claims often take up to seven years to investigate and work their way through the courts. An insurance company, which was marginally acceptable at the time insurance was placed, could be in severe difficulties or unable to pay the losses by the time a professional liability claim settlement is negotiated.

While insurance brokers do not guarantee the financial security of the Insurers with whom they place business, most brokers carefully monitor the finances of the Insurers they deal with. Unfortunately not all brokers set the same standard and there are some brokers who are prepared to use Insurers who do not meet high standards of solvency or stability because the Insurer is willing to underwrite at very low rates or the Insurer offers a higher commission.

To protect against these problems, it is recommended that applicants make specific inquiries about the Insurers who write their business. There are a number of ways in which this can be done. There are several independent organisations, such as the A.M. Best Company that provide financial ratings for many insurance companies or the TRAC Report. This type of rating takes into account both quantitative and qualitative factors. In the quantitative evaluation they consider such factors as profitability, leverage and liquidity, all of which are compared with acceptable standard norms. In the qualitative evaluation, such factors as spread of risk, adequacy of reinsurance, quality of investments, adequacy of loss reserves and management are considered.

In Canada there is an annual report called the "TRAC" Report, which measures 8 different financial ratios for insurance companies. It is not unusual for companies to fail to meet an acceptable standard for one or two of these ratios. Companies that fail to meet the acceptable standard for several of the ratios should be carefully reviewed as in some cases this failure may indicate serious problems.

We urge all applicants have their broker make proper inquiries regarding the financial stability of the Insurers with whom they place business and have them provide copies of the information that they obtain. Recently the Ontario Association of Professional Engineers warned their members against using certain Insurers that did not meet specific criteria. It is worthwhile noting that since 1980 there has been eighteen (18) insurers writing this class of insurance. Since then nine of these insurers have either gone bankrupt or pulled out from writing this class of business. Four have changed their name or only write certain classes of Architects or Engineers. There are presently only four to six serious markets the are writing this class of insurance. 

Finally, we urge all Land Surveyors and Engineers, when considering this class of insurance to ensure that they are dealing with a broker who can access most of the available markets and have an extensive knowledge of this type of insurance.

Jardine Lloyd Thompson Canada Inc. is part of the worldwide Jardine Lloyd Thompson Insurance Brokerage Group. Jardine Lloyd Thompson and its subsidiaries specialise in professional liability insurance, handling of professional liability insurance claims and arranging captive insurance companies.


The information contained herein is believed to be accurate, but individual circumstances, local business and insurance practice and the Law can vary extensively and Jardine Lloyd Thompson and its associated and subsidiary companies are not responsible for any errors and omissions or any loss or damage arising from the use of this information. In the event of situations such as are described in this bulletin, the reader should seek legal counsel and specific advice from Jardine Lloyd Thompson or your Insurance Broker.

© 2001 Jardine Lloyd Thompson Canada