The Problem with “Duty to Defend” Provisions
Professional liability insurance policies for architects and engineers are considered “indemnification policies” and consequently the insurance carrier accedes to “make whole” any party that suffers from injury or loss resultant from “negligent deliverance of professional services” up to the available limits of the policy. Where “negligent” means is the operative term in that your standard of care is the “ordinary man” standard and not perfection.
Regrettably, most drafters of contracts for the professional services of architects and engineers are unaware that as opposed to a General Liability policy’s “additional insured” provision which provides affirmative defense of a third party, an A/E professional liability policy does not have a provision to provide “defense” outside of the design professional.
Thus, the familiar contractual indemnity that goes something like “Engineer / Architect will defend and hold harmless owner from and against any costs, losses or other financial burdens incurred by owner as a result of any claim, lawsuits, …. based on the alleged errors of the Engineer / Architect ” is often an overlooked provision that is generally “uninsurable” by the professional liability policy. Owners have not been well educated in the nuances that differentiate an engineers / architect’s professional liability policy from a general contractor’s general liability policy.
Perhaps you are wondering why this is not insurable. Professional liability is brought on by “actual or alleged negligence” and solely benefits the design professional. To grant affirmative defense to a third party due to alleged negligence is outside the policy’s provisions. Professional liability policies will compensate an owner for costs accrued in their defense as long as the architect or engineer was actually negligent.
Furthermore, the contractual liability exclusion in all professional liability insurance policies for architects and engineers states that the only contractual coverage granted is “such liability that would have existed in the absence of a contract.” Basically, this means that the design professional is always held to the negligence standard of care even without a contract.
Clearly, you should remove the word “defend” from the professional liability policy contract and make sure that the balance of the indemnity provision is correctly based on your “negligence.” Now, the only question is: “What do I actually do when the owner (or their attorney) recoils at the removal of the word “defend” from the contract?