ENCON Group Inc.
500-1400 Blair Place
Ottawa, Ontario K1J 9B8
Telephone 613-786-2000
Facsimile 613-786-2001
Toll Free 800-267-6684
www.encon.ca
The Retiring Design Professional
Design professionals need to consider more than financial planning when they prepare to retire. In order
to enjoy the next chapter in your life and reduce the stress from unforeseen lawsuits, it is important to
ensure that you obtain insurance that will provide you and your estate with continued professional
liability coverage. Consider the following:
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You will remain personally responsible for professional services you performed prior to retirement
long after you have ceased practising. The winding up of a practice does not protect a design
professional from claims arising out of professional services.
Professional liability for design professionals is underwritten on a claims-made basis.
You will need professional liability coverage in the event that you choose to perform part-time work
after you retire.
Your estate can be sued for your professional errors if you pass away before the litigation is resolved.
If you have dependants who will rely upon your estate’s assets, then you need to protect the estate by
maintaining professional liability coverage in your name.
Consider also the “claims-made” nature of professional liability policies. A claims-made policy features
“retroactivity” of coverage which means that the insurer will respond to claims first made against the
insured from the moment coverage incepts regardless of when the professional services which gave rise to
the claim were performed. (Coverage is subject to restrictions for prior knowledge, i.e., you didn’t know
about the claim or circumstances that gave rise to it prior to purchasing the insurance.) This means that if
today you are first made aware of a claim or circumstances that could result in a claim in respect of
services you rendered two years ago, you would report that claim to your current insurer. It also means
that you are only protected by the insurance for as long as you maintain a policy in force.
As you can imagine, it is possible for a cause of action to arise well after the professional services have
been rendered. Read the cases of these retired professionals.
1. In April 2004, ABC Engineering Inc. (“ABC”) acted as structural engineers for the purpose of
preparing building permit drawings and inspecting the foundation system of a new two-story
commercial building. In June 2006, ABC cancelled its professional liability policy because the two
principals had retired and decided they would no longer require coverage. Five months later, in
November 2006, the building owners issued a demand letter stating that the drawings submitted were
inaccurate and misleading. The owners sought relief for the loss they incurred to rectify the drawings
from ABC and its principals. As ABC had failed to maintain its professional liability coverage in
force, it had no insurance to respond to the claim. If the policy had been kept in place, and in the
event the terms and conditions of the policy were met, the claim would have triggered coverage for
the firm and the two retired principals.
2. A retired architect was sued 30 years after she rendered professional services to the owners of a
department store. Her mandate had been to provide architectural design and site inspection services
for the construction project. Years after substantial completion, a severe snow and ice storm caused
considerable accumulation of precipitation on the building’s roof, causing it to collapse. This resulted
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in significant property damage, and the store closed for 11 months for cleanup and repairs. The
building owners launched an action against the general contractor, subcontractors, material suppliers
and design professionals involved with the construction, including the retired architect. The amount
claimed against all defendants was approximately $6,000,000 and included economic loss, emergency
work, reconstruction, destroyed merchandise and professional fees.
The architect retired five years prior to the claim being made. The architect’s decision to maintain a
retirement policy provided her with coverage for this lawsuit, as the claim was made and reported to
insurers during the term of an in-force policy.
Insurance Options for Retiring Design Professionals
Partner or Employed Professional: If you are a partner of an active firm and are considering retirement,
make arrangements with your former partners or employers to maintain prior acts coverage for you under
the firm’s insurance policy. This is best done through a formal, written agreement with the partnership or
corporation. You may wish to have legal counsel help you draft the agreement which should also include
the requirement to notify you in advance should the firm decide to discontinue its insurance coverage.
The Sole Practitioner: If you are selling your practice, it will require that in the agreement of purchase
and sale that the purchaser maintain insurance protection in force for your former practice. Ask the
purchaser to add your former firm name to the insurance policy if the original name changes. Specific
retirement coverage is available through ENCON for sole practitioners who have been insured with
ENCON for at least three years immediately prior to their retirement date.
Dissolution of a Partnership: All professionals, whether partners or employees of a firm which is
dissolving, need to maintain liability coverage in place for the runoff of potential liabilities. If you are
selling the assets of your partnership, consider requiring the purchaser to take on this obligation.
Limitation Act Regarding Retirement Coverage
We suggest that you check with legal counsel to confirm the limitation act governing retirement coverage
requirements in your jurisdiction.
Conclusion
You have worked hard and saved well for your retirement. Ensure that you protect those savings and
maintain your peace of mind by asking your broker for advice on how to keep your professional liability
coverage in place.
This article has been prepared for general information use. It is based on sources we believe reliable and should be
understood to be general risk management and insurance information only. Please remember that actual claims are
governed by the specific insurance policy terms, coverage, amounts, conditions, and exclusions.
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© 2011 ENCON Group Inc.
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