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RE: Condos. Charging for the extra E&O insurance costs.

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    I disagree with your statement about the cost being minor.  I did a single condo last year that was never constructed (I have a statement from the OWNER saying it will NEVER be built) and represented about 3% of our gross fees for the year.  Our insurance carrier (DPIC) increased our insurance premium 60%.  We have never had a claim on our insurance in 13 years and have been with DPIC the entire time.
 
    We are no longer with DPIC.
 
Brian K. Smith, P.E.
-----Original Message-----
From: Paul Feather [mailto:pfeather(--nospam--at)SE-Solutions.net]
Sent: Thursday, December 02, 2004 4:21 PM
To: seaint(--nospam--at)seaint.org
Subject: Re: Condos. Charging for the extra E&O insurance costs.

see below (comments are from a CA perspective)
----- Original Message -----
To: SEAINT
Sent: Thursday, December 02, 2004 1:40 PM
Subject: Condos. Charging for the extra E&O insurance costs.

I am considering the cost of insurance increases to perform a condo design. I found costs exceeding my design fees by at least 200%. I have made some assumptions that I would like to have comments on. What is the usual increase of insurance cost for one project???

 

 

This is highly variable.  If you are discussing "project insurance", separate coverage for this one project, you will find it is extremely expensive and virtually unobtainable.  If the project just becomes one of your normal projects, adding condos to your mix can be minor if it is an isolated instance and does not represent a large percentage of your annual gross, usually less than 10%.  The problem is this is 10% every year, not just the year you did the condo project.  The scale escalates rapidly from there, and if condos start to represent more than 25% of your annual gross you may find yourself un-insurable.  Doubling your annual insurance costs can happen very quickly.

 

Extra insurance payments from one project will be for about 10 years. I wonder if litigation is more likely to occur as time nears to the 10 year mark.. ????

 

Absolutely.  The situation in CA in so bad that if the HOA does not initiate a lawsuit, the lawyers threaten to sue the HOA for negligence in protecting the rights of the members.  There are even tickler services that lawyers subscribe too that will notify the attorney as the latent period approaches for all peritted condo projects.

 

Insurance increase estimates needs include the time that the designer will  spends in settlement conferences, depositions and possible trial. Maybe another 30% of the time it took to design it????

 

Good luck.  I would be very hesitant to try and estimate how much it will cost in tomorrows dollars to get out of the lawsuits and try and add it to the fee.  There is no way you will negotiate enough additional funds to cover your losses.  No matter how much you try and negotiate for there will be someone who will do the job without all the protections and cost factors.

 

Go see the information at…

 

http://www.structuralist.net/wp_professional/index.php?cat=2

 

www.structuralist.net  is by Dennis Wish

 

I encourage our profession to take on condo and apartment designs. There is a need for the housing. Make sure that the client understands that the larger fees are to pay extra for E&O insurance. Understand that the increased E&O fees are reasonable, because most condos are going into litigation regardless of the quality of your design.

 

 

Get back to us in a year and let us know how many of these projects you were able to negotiate with adequate fees.  I agree that there is a need for the housing, but this does not mean you are going to find enlightened developers who can and will pay the additional costs.  The developer will be an LLP, and will make some minor name variation as a new company every few years to protect themselves from the liability.  You on the other hand cannot do this as a design professional and will get hit with the liability regardless.

 

 

Developers now must get an over-all coverage that might also include the Structural Engineer.

 

Wrap insurance is another often mis-understood aspect of condo projects.  The wrap policy protects the developer and contractors, but very rarely will wrap coverage extend to the design professionals.  Even if it does extend to the design professionals, the term of coverage is usually not sufficient to include the design work performed prior to construction or will not extend long enough to cover the full latent period for the design professional.

 

 

Go see structuralist.net.

 

David Merrick

Structural Engineer of California