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Re: E/O Insurance

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Paul,

Apologies for the long response.

Insurance companies will frequently refer to "underwriting losses" when they 
increase rates.  "Underwriting losses" refer to payments made by the company 
being greater than the premiums collected, and conveniently omits income 
received from investments.

You ask some very good questions about "going bare."  If a client requires 
E&O insurance, I try to find out what the client expects the E&O insurance to 
do as far as they are concerned.  Usually, they expect to be "protected" by 
the insurance, however, they are generally not aware that E&O insurance is a 
"claims made" insurance policy, as opposed to an "occurrence" policy, i.e., 
that the policy must be in effect when the claim is made, not just when the 
design is done.  If the client still insists on E&O coverage, I offer them 
that I will try to obtain "project coverage" for a specified number of years, 
which would really protect the client, but that would be a reimbursable cost 
to the client as it applies to his/her project only.  I have yet had a client 
take me up on the project coverage, maybe it is because some years ago 
Arizona rescinded the "deep pocket" liability provisions of the law and made 
parties to a lawsuit only responsible for *their* portion of any award.

So, what protection does E&O insurance provide to either the insured, client 
or public?  In my opinion:

None, if you have it when the project is designed, and don't have it when the 
claim is made.

None, if you have it when the claim is made, but the policy requires the 
insurance be continuously in force from when the design is performed to when 
the claim is made.

None, if the attorney selected by the insurance company offers to settle 
(usually within the deductible) and you don't agree.

None, if your present insurance company decides to stop offering E&O 
insurance and your new company will not cover work designed under previous 
policies.

None, if you want to be represented by an attorney of your choice, instead of 
an attorney selected by the insurance company.

As a side note, I met with an attorney for a large corporate client 
concerning a project in which some failures were occurring.  The attorney 
kept asking me if the structural engineer for the project made a mistake in 
his calculations.  My response was that the calculations were correct, but 
the wrong criteria was used.  In the end, the attorney remarked that they 
could not sue the engineer if a mistake had been made.  Whether it was 
because of pride or advice, the engineer refused to admit that he had made a 
mistake and ended up being sued.

A. Roger Turk, P.E.(Structural)
Tucson, Arizona

Paul Feather wrote:

. > Hi Roger,

. > I do not know if rates will climb to the levels you indicate, but I can 
. > say that rates have been increasing.  Our rates have increased in 
. > disproportion to our revenue increase for the past two years. The first 
. > year the agents were singing some song and dance number and trying to 
. > blame the increase on Sept. 11., rather than the poor performance of the 
. > Markets. At least this past year the increases were not accompanied by 
. > the lame excuses.

. > As a side note, I know a lot of you "go bare" without E/O insurance.  I am
. > note sure how you accomplish that, we could not perform the projects we do
. > without E/O insurance.  Do you limit your projects to those without E/O
. > insurance requirements?  From my perspective, E/O insurance is one of 
. > those unavoidable expenses in a captured market. I can complain when the 
. > rates go up, but there are not a lot of options beyond that.

. > Paul Feather PE, SE
. > pfeather(--nospam--at)SE-Solutions.net
. > www.SE-Solutions.net

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