What is professional liability insurance for engineers?
Professional liability insurance, also known as errors and omissions insurance, is a type of commercial insurance in Ontario that protects engineers from financial losses associated with claims of professional negligence or errors in their work. This type of insurance is designed to cover the costs associated with legal defence and damages if a customer alleges that an engineer’s services or advice resulted in financial loss or injury.
Professional liability insurance is essential for engineers because they are held to a high standard of care and can be held liable if their work does not meet expected standards or if they make errors or omissions that result in harm.
Who needs professional liability insurance for engineers?
Any and all types of engineers who provide services or advice to customers, including:
- civil engineers
- mechanical engineers
- electrical engineers
- software engineers
- environmental engineers
- structural engineers
Any engineer who designs, constructs, or maintains projects, products, or systems that potentially cause harm or financial loss to customers or other third parties should consider obtaining professional liability insurance. This includes engineers who:
- work as consultants
- are independent contractors
- are employees of architectural and engineering firms
Professional liability insurance is particularly important for engineers in high-risk industries such as construction, aerospace, and healthcare, where even minor errors or oversights can have significant consequences.
What does professional liability insurance cover?
Should an engineer make a mistake, professional liability insurance provides coverage for claims of professional negligence, errors or omissions, misrepresentation, violation of good faith/dishonesty, and other types of professional misconduct that result in financial loss or injury to a customer or other third party.
For engineers specifically, professional liability insurance typically covers claims related to:
- design errors
- faulty specifications
- incorrect calculations
- failure to meet industry standards
- Any other types of errors or omissions in their work
Professional liability insurance can provide coverage for a wide range of costs associated with claims, including legal defence fees, court costs, settlements and judgements. Some comprehensive form policies will also cover intellectual property infringement claims, breach of contract claims, and other types of professional liability claims. Each policy’s specific coverage and limits will vary depending on the insurance company and the policyholder’s needs.
Why engineers need professional liability insurance
Engineers can be held liable for mistakes, errors, or omissions in their work that cause financial loss or injury to their customers or other third parties. Even the most skilled and experienced engineers can make mistakes or encounter unforeseen problems during a project’s design, construction, or maintenance. In such cases, customers may file lawsuits or claims against the engineer, alleging negligence or professional misconduct.
Professional liability insurance provides financial protection by covering legal defence costs, court fees, and damages awarded or settlement costs in such cases. Without professional liability insurance, an engineer may face:
- significant financial losses
- damage to their reputation
- the potential loss of their professional license
Having this type of insurance coverage helps engineers to mitigate the risks associated with their profession and to focus on their work with peace of mind.
Receiving a lawsuit for negligence or errors in your work
If you don’t have professional liability insurance and someone sues you for negligence or errors in your work, you will be responsible for paying any damages or settlements awarded in the lawsuit out of your own pocket. This can be financially devastating, particularly if the damages are significant.
Additionally, if you are found liable for professional misconduct, your reputation and credibility may be damaged, which can have long-term consequences for your engineering career. In some cases, a finding of professional misconduct can also result in disciplinary action by professional licensing boards, including fines, suspension or revocation of your license, or other penalties.
For these reasons, it is strongly recommended that engineers carry professional liability insurance to protect themselves from the financial and reputational risks associated with claims of professional misconduct. Your policy will cover legal fees, court costs, settlement fees, and damages awarded in such cases.
What coverages are excluded from a professional liability insurance policy?
While professional liability insurance covers many situations for engineers, it does not typically include the items listed below:
- Intentional misconduct, fraud or dishonesty.
- Bodily injury or employee injury, as commercial general liability insurance provides coverage for bodily injury and employer liability coverage usually covers job-related injuries.
- Property damage, as this is covered under a commercial property insurance policy.
- Discrimination or harassment.
Additionally, coverage may be limited or excluded for certain types of work or projects, depending on the policy language and the insurer’s underwriting guidelines. Our insurance experts here at BrokerLink can help tailor your insurance policy to fit your engineering business needs and guide you to determine the ideal coverage for you.
What is the difference between professional liability insurance and general liability insurance?
Commercial general liability (CGL) insurance and professional liability insurance (PLI) are two different types of insurance that provide different types of coverage for businesses and professionals.
CGL insurance provides third-party liability coverage for bodily injury, property damage, and personal injury claims arising from a business’s normal operations. For example, if a customer slips and falls in a store, CGL insurance can cover medical expenses and legal fees associated with a resulting lawsuit.
On the other hand, professional liability insurance provides coverage for claims arising from professional services or advice that result in financial loss or injury to a customer or other third party. This can include negligence claims, errors or omissions, and failure to perform professional duties.
The key difference between CGL and PLI is that CGL insurance covers claims that arise from general business operations. In contrast, PLI covers claims arising from the professional services the insured provides. For engineers, this means that professional liability insurance is specifically designed to cover claims related to engineering services or advice, while CGL insurance would not provide coverage for such claims.
What are the two types of professional liability insurance coverage?
The two main types of professional liability insurance are claims-made and occurrence policies:
Claims-made
A claims-made policy provides coverage for claims made during the policy period, regardless of when the alleged incident occurred. Claims-made policies require that the claim be reported to the insurer while the policy is in effect or within a specified time period after the policy expires. Claims-made policies are generally less expensive than occurrence policies but can require the purchase of extended reporting periods, also known as tail coverage, to provide coverage for claims made after the policy expires.
Example: Avery, an engineer who consults for multiple consulting engineering companies, acquires a claims-made policy in 2018 and terminates it in 2020. In 2021, Avery faced a lawsuit for an incident that took place in 2019. As the claims-made policy is no longer active and no extended reporting period was bought, Avery is responsible for the damages and must pay for them from their own pocket.
Occurrence
An occurrence policy provides coverage for claims that arise from incidents that occurred during the policy period, regardless of when the claim is made. With an occurrence policy, the coverage is determined by the policy that was in effect at the time of the incident, even if the policy has since expired or been cancelled. Occurrence policies offer more comprehensive coverage but can be more expensive than a claims-made policy.
Example: Joseph, who owns an engineering firm, bought an occurrence policy in 2014 but modified his coverage in 2017. Joseph was then sued in 2018 for an event that occurred in 2016. However, he is covered since Joseph had an occurrence policy at the time of the event.
The choice between a claims-made or occurrence policy will depend on the engineer’s or business’s specific needs and risks.
Is professional liability insurance mandatory?
Professional liability insurance is not mandatory in Canada. Still, it is strongly recommended for many professionals, including engineers, architects, accountants, lawyers, and others, who provide specialized services or advice to customers.
While the federal or provincial government does not legally require professional liability insurance, it may be a requirement of certain customers, contracts, or professional associations. For example, some government contracts or tenders may require professional liability insurance as a condition of bidding or being awarded the contract. Similarly, some professional associations may require their members to carry professional liability insurance as a condition of membership.
Even if professional liability insurance is not mandatory, it is an important risk management tool for professionals who face potential liability for errors or omissions in their work. Without professional liability insurance, professionals could be exposed to significant financial and reputational risks in case of claims of professional misconduct.
Factors that impact the cost of professional liability insurance
Several factors can impact the price of professional liability insurance, including:
- Engineers who work on high-risk projects, such as those involving large structures, hazardous materials, or complex designs, may face higher premiums.
- A history of frequent or large claims can result in higher insurance rates.
- Larger engineering firms may pay higher premiums due to the increased risk exposure.
- Higher coverage limits or lower deductibles can result in higher premiums.
- Some industries may require specific types or levels of professional liability insurance, which can impact the cost.
- Insurance rates can vary by region, with some areas having higher premiums due to increased risk exposure or local regulations.
- Experienced and highly qualified engineers may be viewed as lower risk and pay lower premiums.
Working with a BrokerLink business insurance broker can help you to evaluate your specific needs and risk profile and to determine the best coverage options and rates for your engineering business.
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How much professional liability insurance does an engineer need?
The amount you need as an engineer in Canada will depend on several factors, including the size and scope of your business, the types of projects you work on, and the risks associated with your work.
There is no one-size-fits-all answer to this question, but some industry associations, such as Engineers Canada, recommend a minimum coverage of $1 million per claim and $2 million in aggregate. However, this may not be sufficient for all engineers, especially those working on large or complex projects or those with higher exposure to risk.
In general, it is better to err on the side of caution and carry more professional liability insurance than you think you may need, as this can help to protect you from potentially devastating financial losses in case of a claim. Therefore, it is essential for you to consult with a licenced insurance broker or advisor to determine the appropriate amount of coverage for your specific needs. At BrokerLink, we can help you assess your risks, evaluate your coverage needs, and guide you through policy limits, deductibles, and other options.
Other types of insurance an engineer may need in Canada
As an engineer, you may wish to purchase additional insurance policies to protect your business and personal assets. Here are some of the most common:
Commercial general liability insurance
This policy covers third-party bodily injury, property damage, and personal injury claims arising from your business operations.
Commercial property insurance
This policy covers damage or loss to your business property, including buildings, equipment, and inventory.
Business interruption insurance
This policy covers lost income and expenses if your business operations are interrupted or suspended due to a covered loss.
Cyber liability insurance
This policy covers data breaches, cyber-attacks, and other cyber risks that can result in financial losses, reputational damage, and legal liabilities.
Commercial auto insurance
If you use a vehicle for business purposes, such as transporting equipment or travelling to job sites, you may need commercial auto insurance to protect against accidents and other liabilities. You may also need commercial fleet insurance if your business owns five or more commercial vehicles. Learn more about fleet insurance requirements.
Directors and officers liability insurance
This policy provides coverage for claims made against directors and officers of a company for alleged wrongful acts, such as breaches of duty, errors in judgment, or other management decisions.
How to lower your professional liability insurance premiums
There are several ways you can lower your professional liability insurance rates:
Practice good risk management
Implement strong risk management practices in your business to reduce the likelihood of claims, such as thorough customer intake procedures, detailed contracts, and diligent record-keeping.
Choose a higher deductible
A higher deductible means you will pay more out of pocket in case of a claim, but it can also lower your insurance rates.
Maintain a good claims history
A history of few or no claims can help to lower your insurance rates, as insurers view this as a sign of lower risk.
Shop around
Get quotes from multiple insurance providers to compare rates and coverage options. Some providers may offer discounts or special rates for certain types of businesses or industries.
Bundle policies
If you have other insurance policies, such as general liability or property insurance, consider bundling them with your professional liability insurance to get a discounted rate.
Consider a risk-sharing program
Some professional associations offer risk-sharing programs that allow members to share the cost of claims, which can help to lower individual insurance rates.
Work with a licenced insurance broker
An insurance broker can shop around on your behalf for the best coverage options and discounts, saving you money and time. They can also advise on risk management and claims history to reduce your overall risk profile, which can also help lower your insurance premiums.
How to protect yourself against a professional liability insurance claim
Engineers can protect themselves against a professional liability insurance claim by implementing the following four risk management practices:
- Collect and review as much information as possible about potential customers: This can help professional engineers make informed decisions about which customers to work with and whether they have the resources to meet their needs.
- Have a thorough customer intake form and a detailed working agreement or contract: Ask for information such as any prior consultants the customer has worked with, how and why they chose your engineering firm, and the customer’s goals and expectations.
- Use a detailed working agreement or contract: Be sure to include a full scope of work to be done, a comprehensive fee structure and billing arrangements, and any responsibilities and expectations from both parties. This can help to establish clear expectations and prevent misunderstandings.
- Diligently document all meetings, correspondence, receipts, and invoices: This can provide evidence of due diligence and compliance with professional standards in case of a claim.
By following the above practices, they can protect an engineer by helping to minimize the risk of errors or omissions in their work and providing a strong defence in case of a lawsuit. Strong risk management practices can help engineers avoid business liabilities or minimize their impact, protecting both their reputation and financial stability.
Get a free quote from BrokerLink for professional liability insurance today
Getting professional liability insurance for engineers is as easy as 1, 2, 3, 4:
- Call one of our local expert insurance brokers or use our free online quote tool
- Tell us about your engineering business
- Our experts shop around for the best rates
- You get insurance
It really is that easy. Our BrokerLink insurance advisors possess the knowledge to assist you in mitigating potential business risks and ensure that you have the appropriate coverage. We can also help guide your business to recover more quickly in the event of an insurance claim.
Get started today by requesting a free insurance quote from us at BrokerLink. You can either call, try our free online quote tool or visit one of our many locations across Canada.
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Professional liability insurance for engineers FAQ
Does professional liability insurance cover claims made against me after I retire or leave my job?
Coverage for claims made against you after retirement or you left a job depends on your policy’s terms. Professional liability policies are typically on a claims-made basis, covering claims made during the policy period. Without an extended reporting period or tail coverage, you may not be covered for any claims made after your policy ends. Nevertheless, some insurers offer automatically-extended reporting periods for retirement or death, but the length of coverage may vary depending on the insurance company.
Will my engineer’s insurance policy cover claims made against me for work that I did before the policy was in effect?
No. Most professional liability insurance policies provide coverage only for claims made against the policyholder and reported to the insurance company during the policy period. Claims arising from incidents that occurred before the policy’s start date are generally excluded. However, some insurers may offer what’s known as “retroactive” coverage, which provides coverage for claims arising from incidents that occurred before the policy’s effective date. However, the policyholder must not have been aware of the incident when the policy was purchased.
If you have any questions, contact one of our local branches.
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