Professional liability insurance is a must for every architecture or engineering firm working on significant projects, no matter if it has 2 employees or 2,000.
This kind of insurance protects an architectural firm and its employees against claims alleging negligent acts, errors, or omissions in the performance of architectural services. This is different from commercial general liability (CGL) insurance, which covers the types of accidents or property damage that could happen at any business.
Purchasing professional liability insurance is usually a watershed moment in the growth of a small firm, signifying that it has been awarded a project large enough in scope or with a significant enough scale or budget to require it.
A variety of factors go into establishing the premium for a particular design firm’s policy, including the firm’s primary project type, claims history, whether it uses standard written contracts, specialty coverage, and the extent of coverage required for prior acts. But one thing that is not yet taken into account is whether or not the firm is using 3D Building Information Modeling. As new case law develops on how to handle risk from new processes, using a collaborative BIM process could, theoretically, lead to lower insurance premiums in the future.
“All the recent cases we’ve seen dealing with fault from the design and construction process were not driven by collaboration in BIM,” says Michael Hastings, managing director of Marsh Insurance’s U.S. construction practice. “Cases we have seen and read about so far were ones wherein BIM was not the thing that caused problems and litigation; it was the communication and how the project was delivered.”
In addition to being involved with the BIM Forum as a liaison to the insurance industry, Hastings has delivered talks on BIM, contract law, and its burgeoning effect on the insurance industry to many AEC (architecture, engineering, and construction) groups.
He recently gave a talk on surety bonding and risk management to the Associated General Contractors of America, discussing the issues of using BIM as the medium of communication to get the general contractor and trades to discuss with the designer, early on, issues that relate to safety and constructability, and give a project a virtual environment wherein you can create your model in 3D before you build it in the real world.
“BIM is just a tool that gives you that collaborative environment and meaningful exchange of information so that people can work together better,” Hastings says.
When discussing new contract forms such as integrated project delivery (IPD) and three-party-risk IPD, Hastings says that most of the clients who use BIM do not need to reinvent their contract documents to gain the benefits of the process.
“How consenting adults decide to structure their contracts is an issue that can be left to them,” he says. “The benefits you get from collaboration, from integrating, from co-locating, from having a social BIM where trade contractors are engaged and entering information early directly in the BIM—you don’t have to have a three-party agreement for any of that. An owner can do all of that and still be protected by a guaranteed maximum price. Collaborative design-build or construction-management-at-risk teams can all use building information modeling and reap its benefits, including prefabrication, virtual construction, and making decisions early. “
The IPD contract Hastings recommends to designers and contractors is the one written by the AIA California Council, which does not specify any particular architect, owner, general contractor/construction manager agreement.
“Only a large institutional owner with a big capital expenditures budget and staff can do that [three-party agreement],” Hastings says. “The ones we’ve seen so far have been healthcare owners because they see the benefits. They are large consumers of buildings who understand building processes. For any owner who’s only going to build one building, I don’t see any reason. With the recession, you could get the best, most-guaranteed maximum price under traditional delivery methods. What if you went to a lawyer or healthcare professional, why would they want to go to an equal-footing agreement? They are the experts, you are not, why would you take on any of their risk?”
Hastings says he’s had good conversations with underwriters about BIM and how it can be incorporated into future policies. The trick, he says, is creating insurance instruments that cover the whole project team itself. Liability policies are triggered by instruments of fault, by one party failing the duty of care and being legally responsible for the consequences.
“There is no way that that is going to be the vehicle to cover a collaborative team,” he said. “What I have been challenging underwriters to think about is if your house burns down, your homeowners insurance company will rebuild the house the way it was before it burned down. That’s what they’d build, what it looked like in the real world. How good would the model have to be, though, for them to use it as what they build rather than paper plans and images of the house that was there? The building that you actually build in the real world, if something goes wrong, would then become analogous to your house after the fire. Why not 3D BIM models as documents of build conditions? If you’re modeling correctly and you have truly built it virtually before you built it, there will be the money available.”