The owner of a 116-year-old building that partially collapsed earlier this year is taking legal action against the engineering company that allegedly failed to recognize that the building was unsafe, according to reports. The apartment building in Davenport, Iowa, partially collapsed on May 28, tragically killing three men and injuring several others, including one woman who needed a leg amputation in order to be removed from the rubble.
“This is a very unfortunate incident where three individuals lost their lives and one woman had to have her leg amputated. It is very tragic,” said Joey Franiak, Broker, Professional Liability, Burns & Wilcox, San Diego, California.
Anytime a death is involved, that is the worst-case scenario for everybody.
It is a prime example of the type of action that can be covered by Architects and Engineers Professional Liability Insurance, according to Franiak. “Anytime a death is involved, that is the worst-case scenario for everybody,” he said. “It is tough to put a price on a life. That being said, for design and engineering firms, this is why they have insurance. It protects them if there are allegations that they were negligent in their services.”
‘Blame to go around on multiple fronts’
When the engineering firm inspected the Davenport apartment building in the months and weeks prior to the collapse, wall damage was noted but it was not considered an imminent threat, the Quad-City Times reported. City officials also inspected the building and reportedly approved the ongoing repairs. In this type of case, “there may be some blame to go around on multiple fronts,” said Timothy Barden, Broker, Professional Liability, Burns & Wilcox, San Antonio, Texas.
“It was not just the engineering firm that could have had some culpability but also potentially the city,” he said. “Establishing where that culpability lies, or where the negligence was, is going to be key. All of that is going to come out in the discovery process.”
It is important for engineering firms to have this coverage in place because it does not just indemnify them if they made a mistake, but it also pays for the cost of defense.
In addition to the new lawsuit against the engineering firm alleging negligence and breach of contract, multiple suits were filed by residents in the weeks after the collapse that named the firm in addition to the building’s current and former owners and the city, the Associated Press reported in June. When a design firm is sued over a building collapse or other alleged error, its Architects and Engineers Professional Liability Insurance can start picking up defense costs right away, Barden explained.
“In the commercial and residential construction space, typically when there is an issue, those bringing the claim tend to name anyone who is involved — whether it be the contractor, engineer, or the project manager,” he said. “It is important for engineering firms to have this coverage in place because it does not just indemnify them if they made a mistake, but it also pays for the cost of defense.”
This is a crucial benefit, Franiak added, especially as legal costs rise. One recent survey found that companies have seen their legal spending increase by 29% over the span of a year, Legal Dive reported in June. “Whoever is negligent remains to be seen, but the engineering firm will need to defend itself,” he said.
Design firms facing more lawsuits, higher costs
From architects and engineers to physicians and attorneys, anyone who offers a professional service could be sued for negligence, Franiak noted. About 31% of American doctors have been sued at some point in their career, Fierce Healthcare reported in May, and the American Bar Association has reported that 4 out of 5 lawyers will get sued for malpractice during their career. “Human error is always going to be part of life, whether it is for architects and engineers or lawyers, doctors, scientists or other technical professional services,” he said.
Design professionals face a unique risk in that structural problems may not develop until months or years after a project is completed and once a building has had time to settle. “These professionals face a unique exposure that may take years for the problem to surface,” Franiak said.
Over the last decade, the frequency of claims has increased. Our society in the U.S. in general is becoming more litigious, and with architects and engineers, specifically, we are seeing frequency escalate.
Also known as Errors & Omissions Insurance, Architects and Engineers Professional Liability Insurance is necessary for “any kind of design or construction firm,” he added. Design firms may also need to carry Commercial General Liability (CGL) Insurance, which can cover construction defects and third-party bodily injury and property damage claims, as well as Excess Liability Insurance for additional liability limits. According to Barden, these policies are increasingly important amid a rise in litigation against professionals.
“Over the last decade, the frequency of claims has increased,” he said. “Our society in the U.S. in general is becoming more litigious, and with architects and engineers, specifically, we are seeing frequency escalate. That is a concern.”
The cost of closing a claim has also gone up, Barden said, which has led to higher premiums in some cases. “We have seen costs overall involved with claims increase,” he said, adding that losses “could be catastrophic” when a firm is sued over a major alleged design flaw. “That is why we encourage design firms to have insurance. Also, if it is a highly publicized case, it can greatly reduce their potential for future revenue. It could be a PR nightmare.”
Risk transfer is ‘paramount’
When purchasing Architects and Engineers Professional Liability Insurance, it is important to ask about the definition of professional services, along with any coverage that may be included for media and advertising liability or the use of specialized equipment like drones, which are being utilized more often in the industry, Barden suggested.
“They should be going through their policy forms in depth to make sure they know exactly what they are getting,” he said. “I would also encourage shopping the coverage every two to three years. We have seen some new capacity and new markets that have come into the space over the last few years that have been very competitive with solid policy forms.”
An electrical engineer does not need the same policy as a land surveyor. It is important to work with somebody who really understands and grasps what the client is doing.
These policies are highly tailored to the specific professional, Franiak added, and partnering with a specialized insurance broker is imperative. “An electrical engineer does not need the same policy as a land surveyor,” he said, noting that some design professionals could need additional coverage to address risks like pollution or cybersecurity incidents. “It is important to work with an expert broker who really understands and grasps the scope of services the client is performing. We always look at risks holistically and provide unique solutions for our clients’ specific requirements.”
Even with strong risk management protocols in place, design firms should be prepared for the risk of a lawsuit at any time, Barden added. “It does not matter if you do not think you are going to make a mistake,” he said. “You could potentially be sued for a frivolous matter, which none of us have any control over. So, with that in my mind, the risk transfer of obtaining this coverage for a business owner in the engineering space is paramount.”