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Construction Spending’s Up, Time to Review Architects E&O Insurance


ConstructionManaging Risk As Architects & Engineers Begin Seeing More Work

Recent data from the Commerce Department shows construction spending is up, with residential projects giving the industry sector a real boost. According to recent stats, construction spending increased 0.6% in August compared with July when spending increased a strong 1.4%. Furthermore, total construction rose to a seasonally adjusted annual rate of $916.1 billion, the fastest pace in four years.

The August gain reflected a solid rise in housing activity, which was up 1.2%. The housing increase included a 1.6% rise in single-family construction and a 3.2% increase in the smaller apartment sector. The hotel industry has also seen a spike in construction: Spending through July was up nearly 30% to $15.2 billion. Other industry segments, such as office buildings and shopping centers, across our cities have also seen an increase in construction spending. For example, according to the New York City Construction Outlook 2013-2015, total construction spending will reach $31.5 billion this year, greater than the previous high of $31.1 billion recorded in 2007 and a 14% increase from $27.6 billion last year. The report estimates the number will keep rising to $33.4 billion in 2014 and $37 billion in 2015.

All of this is good news for the construction industry, including each segment that participates in project design and development, which is comprised among others with architects and engineers. In fact, architecture firms are beginning to build up their project backlog levels – a positive sign that more work is flowing in. The American Institute of Architect’s (AIA) Architecture Billings Index for September registered a 54.3 and in October a 51.6 (any score higher than 50 indicates billings growth).

Architects E&O Insurance Review

With an increase in projects, it’s essential that architects take the time to review their Errors & Omissions (E&O) insurance to ensure they’re properly covered and that the appropriate amount of limits are in place to protect themselves and their assets against professional liability claims. This goes for individual architects, small firms and large practices with multiple architects.

E&O or Professional Liability insurance for Architects provides coverage for claims as a result of alleged negligence, omissions or mistakes, including structural defects, pollution and contaminates, and other issues. It provides coverage for defense costs as well as any judgments that may arise from the litigation, even if the claim was meritless.

Professional Liability claims in general arise as a result of failure to manage expectations than because of a construction failure, especially when the client has little experience with other construction projects. Their understanding of what comprises an architect’s scope of work and the quality and timing of the final product may be unrealistic, but that does not prevent claims from being filed and even going to trial or arbitration. This is why it’s imperative that E&O insurance is a part of one’s business plan and that the coverage is reviewed to make sure it will respond effectively in the event of a claim.

Of course, clear communication and thorough documentation of all client specifications, contracts and change orders per project is key in helping to stem potential lawsuits, especially in today’s complex business landscape. The number of contractors and subcontractors involved in a project and the merging lines of responsibility between design firms and contractors have made the litigious landscape for architects even more complicated and the need for proper coverage more critical.

Axis Insurance Services, LLC specializes in providing custom E&O solutions, including for architects, engineers, structural design consultants, design/build engineers and others in this segment. We have the experience and knowledge to tailor a policy to a client’s specific needs and projects, and work with several insurance companies that specialize in Professional Liability insurance. Give us a call at (877) 787-5258 to discuss our solutions.

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Blogged on: December 3, 2013 by Mike Smith
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