insurance for commissioning professionals risks and solutions presented by: diane mika avp loss...

Insurance for Commissioning Professionals RISKS AND SOLUTIONS

Presented by:

Diane Mika AVP Loss Prevention & Client Education

XL INSURANCEDESIGN PROFESSIONAL GROUP

© 2010, X.L. America, Inc. All rights reserved. _ Apr 19, 2023

About Today

You’ll get answers to the following questions:− Why do commissioning professionals need

professional liability insurance?− Who is XL Insurance?− What is the nature of professional liability risk in

today’s marketplace?− How can I manage that risk?

QUESTION 1

Why do commissioning professionals need professional liability insurance?


Professional Liability Insurance 101

− Applies to professionals− Provide services− Have knowledge, training and expertise− Operate under the “standard of care”

− Covers negligent acts, errors and omissions− Assist in dispute resolution− Handle claims− Pay damages


Why Cx Professionals Need PL Insurance

− Licensed− Provide professional services− Bound by the standard of care− Negligent performance could result in economic

loss− Likely to be named in the event of a claim− Such damages would only be covered by

professional liability insurance

QUESTION 2

Who is XL Insurance?

XL Insurance

Global provider of intelligent risk solutions, delivered with

integrity and supported by market-leading analysis and

financial security

© 2010, X.L. America, Inc. All rights reserved.

Design Professional group

Offers innovative professional liability insurance programs for architects and engineers, with specialized programs to

minimize professional liability risks through insurance, proactive loss

prevention techniques and expert claims service



XL INSURANCE’S DESIGN PROFESSIONAL GROUP

Loss Prevention & Client Education

− Dedicated to the design professions− Analyze claims data− Provide fact-based risk and project management

education− Reduce the cost of loss

QUESTIONS 3 & 4

What is the nature of risk in today’s marketplace?

How can I manage that risk?


Avoid

– Project evaluation

– Client selection

– Go/No-Go decision

Transfer

– Contract

– Insurance

Assume

– Deductible

– Self-insurance

Control

– Loss prevention

– Risk management

Risk Management Fundamentals


*Assumes 5% after tax profit

Why Worry About This Stuff

Cost of problem Revenue needed to offset problem cost*

− $1,000 - $20,000 (400 Staff hours)− $10,000 - $200,000 (4,000 Staff hours)− $50,000 - $1MM (20,000 Staff hours)


RISK DRIVERS

Identifying Where the Risks Lie

− TechnicalError and/or omission of a technical nature which resulted in a loss prevention file or claim

− Non-technicalBreakdown in project or practice management processes which contribute to a loss prevention file or claim being made


RISK DRIVERS

Top 4 Non-Technical Causes of Loss

13%

6%

16%

23% 24%25%

27%

39%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Negotiation andContracts

Client Selection Project TeamCapabilities

Communication

2001

2009

Percentage of Claims Affected


RISK DRIVERS

Negotiation and Contract Issues

Contruction phase services not in contract or not

fulfilled8%

Other8%

Lack of mediation clause

6%

No separatecontigency fund

set aside5%

Deal Breakers in contract

3%

Did not formally evaluate

project risks16%

Contract:-Not firm's own-Not industry std.-Not reviewed by counsel2%

Contract not in place before work

started12%

Client-generated agreement, not

reviewed by senior mgmt.

1%

Unclear or inappropriate

scope of services37%

Field staff didn't have/understand

contact2%


RISK DRIVERS

Negotiation and Contract Solutions

− Evaluate project risks− Begin with your agreement− Align scope with client needs/drivers− Establish a review process− Always use a written agreement


RISK DRIVERS

Client Selection Issues

Client in poor financial condition

17%

No formal review

of client4%

Client not receptive to ADR

1%

Contractor selection

4%

Client behind in fee payments

7%Other

3%

Client has history of claims / litigation

21%

Client inexperienced in

design issues43%

RISK DRIVERS

Client Selection Solutions

− Use a new client intake and review process

− Evaluate your existing clients− Manage client expectations:

− Clarify roles, responsibilities and expectations− Be prepared to spend more time educating an

unsophisticated client− Document, Document, Document− Stick to your scope



RISK DRIVERS

Project Team Capabilities - Issues

Other4%

Unqualified back-up staff

2%

Inexperiencedon-site staff

20%

Insufficient number of staff

1%

Design firm inexperienced in

project type3%

Project outside firm's

normal territory2%

Inexperienced design staff

50%

Inexperienced project manager

18%


TOP AND BOTTOM PROJECT MANAGERS Leadership

0

10

20

30

40

50

60

70

80

Assertiveness

Aggressiveness

Ego-Drive

Empathy

Ego-Strength/Resilie

nce

Risk Taking

Urgency

Cautiousness

Top PM Bottom PM


TOP AND BOTTOM PROJECT MANAGERS Interpersonal Skills

0

10

20

30

40

50

60

70

Empathy

Sociability

Gregariousness

Accommodation

Skepticism

Top PM Bottom PM


TOP AND BOTTOM PROJECT MANAGERS Problem Solving/Decision Making

0

10

20

30

40

50

60

70

80

Abstract R

easoning

Idea Orientatio

n

Thoroughness

Flexibility

Cautiousness

Risk Taking

Urgency

Top PM Bottom PM


RISK DRIVERS

Project Team Capabilities - Solutions

− Identify and cultivate qualified project managers and team managers

− Develop and manage qualified team members− Match the project team with the needs of your client and

project− Recognize that you have to face these risk drivers in

your team—and in the design team on the project


RISK DRIVERS

Communication Issues

Other 3%

Lack of procedures to identify

conflicts, errors and omissions 51%

Scope of services not explained to

client13%

Project issues and potential disputes

not handled correctly

17%

Regular progress reports regarding

changes not approved

1%

Lack of documentation re: changes in scope,

budget, etc. 9%

Project staff not aware of

responsibilities6%

RISK DRIVERS

Communication Solutions

− Scope of services− Must be clearly understood by client− Any changes must be documented

− Establish procedures to identify/address conflicts

− Know the early warning signs− Designate a primary contact within your firm for notification

of issues/conflicts− Institute a procedure to resolve issues at appropriate

levels of authority− Give direction as to what to do when a problem arises

− Treat communications seriously



PD SD CD PR CA OPDD

Time

Eff

ort

/Eff

ec

t

PD: Pre-designSD: Schematic designDD: Design developmentCD: Construction documentationPR: ProcurementCA: Construction AdministrationOP: Operation

Graphic originated by Patrick MacLeamy, AIA / HOK

Ability to impact cost and functional capabilities1

1

Cost of design changes

2

2

Preferred design process

4

4

Moving the Curve Forward (CURT)

3 Traditional design process3

Robert Van Arsdall

Changed Curve #1 to Green and Curve #2 to Red - the tan color was very hard to see in projection to a group

Technical Statistics

Mechanical/Electrical/Process Engineers


MEP ENGINEERS

Who Sues Mech/Elec/Proc Engineers?

5%

10%

3%

81%

6%

7%

11%

77%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Other

Contractoror Subcontractor

Non-Contracting 3rd Party

Project Owner

% of Claims Count

% of Claims Dollars


MEP ENGINEERS

Types of Damages

0%

1%

0%

37%

62%

2%

4%

28%

65%

0.4%

0% 10% 20% 30% 40% 50% 60% 70%

Bodily Injury -Construction

All Other

Bodily Injury -Other

PropertyDamage

EconomicLoss

% of Claims Count

% of Claims Dollars


MEP ENGINEERS

Claim Trigger

Design Error62%

Product Failure

6%

BI - Post-Const. 3rd Party

4%

Construction Schedule

Delays5%

Construction Budget

Overruns5%

Construction Defect12%

Other6%


MEP ENGINEERS

Frequency & Severity (by project type)

13%

10%

9%

30%

11%

2%

7%

3%

7%

22%

15%

7%

9%

10%

11%

12%

22%

0.2%

0% 5% 10% 15% 20% 25% 30% 35%

Retail Malls

Hospitals

Utilities

Process Mfg Systems

All Schools/Colleges

Comm/Ind <= 9 Stories

% of Fees

% of Claims Count

% of Claims Dollars


MEP ENGINEERS

Elements Most Often Involved

1%

2%

3%

4%

23%

60%

3%

3%

4%

9%

16%

49%

0% 10% 20% 30% 40% 50% 60% 70%

Drinking WaterSystem

Lighting

Equipment

Plumbing

Electrical

HVAC

% of Claims Count

% of Claims Dollars


Risk Management Cycle

Client Selection

Contracts

MatchCapabilities

CommunicationIncreased Profit

Internal Investment Projects

StaffRevenue

Improved Quality

Improved Project Management


What Direction Will Your Firm Take?

− How does your firm measure up?− Where are your firm’s weaknesses?− Are any practice or project

management weaknesses exposing your organization to excessive risk?

− Contact the Design Professional group of XL Insurance, and take advantage of our A/E industry expertise


Notices & Disclaimers

− "XL Insurance" is a registered trademark of XL Capital Ltd. XL Insurance is the global brand used by member insurers of the XL Capital Ltd group of companies. In the US, the XL Insurance companies are: Greenwich Insurance Company, Indian Harbor Insurance Company, XL Insurance America, Inc., XL Insurance Company of New York, Inc., XL Select Insurance Company, and XL Specialty Insurance Company. Not all of the insurers do business in all jurisdictions nor is coverage available in all jurisdictions.

− The information contained herein is intended for informational purposes only. Insurance coverage in any particular case will depend upon the type of policy in effect, the terms, conditions and exclusions in any such policy, and the facts of each unique situation. No representation is made that any specific insurance coverage would apply in the circumstances outlined herein. Please refer to the individual policy forms for specific coverage details.

Questions?

Diane Mika

831-657-2568

[email protected]

insurance for commissioning professionals risks and solutions presented by: diane mika avp loss...

Documents

professional liability

nature of risk

risk driverstop

risk driversidentifying

risk management fundamentals

loss prevention file

staff hours

technical nature