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Insurance for Commissioning Professionals
RISKS AND SOLUTIONS
Presented by:
Diane Mika
AVP Loss Prevention & Client Education
XL INSURANCE
DESIGN PROFESSIONAL GROUP
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?
© 2010, X.L. America, Inc. All rights reserved.
Page 2 _ 8-Apr-15
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
© 2010, X.L. America, Inc. All rights reserved.
Page 4 _ 8-Apr-15
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
© 2010, X.L. America, Inc. All rights reserved.
Page 5 _ 8-Apr-15
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
© 2010, X.L. America, Inc. All rights reserved.
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
© 2010, X.L. America, Inc. All rights reserved.
Page 9 _ 8-Apr-15
QUESTIONS 3 & 4
What is the nature of risk in today’s marketplace?
How can I manage that risk?
Risk Management Fundamentals
Avoid
– Project
evaluation
– Client
selection
Transfer
Assume
Control
– Contract
– Deductible
– Insurance
– Selfinsurance
– Loss
prevention
– Risk
management
– Go/No-Go
decision
© 2010, X.L. America, Inc. All rights reserved.
Page 11 _ 8-Apr-15
Why Worry About This Stuff
Cost of problem
−
−
−
$1,000
$10,000
$50,000
Revenue needed to offset
problem cost*
- $20,000 (400 Staff hours)
- $200,000 (4,000 Staff hours)
- $1MM (20,000 Staff hours)
*Assumes 5% after tax profit
© 2010, X.L. America, Inc. All rights reserved.
Page 12 _ 8-Apr-15
RISK DRIVERS
Identifying Where the Risks Lie
−
Technical
Error and/or omission of a technical nature which
resulted in a loss prevention file or claim
−
Non-technical
Breakdown in project or practice management
processes which contribute to a loss prevention file or
claim being made
© 2010, X.L. America, Inc. All rights reserved.
Page 13 _ 8-Apr-15
RISK DRIVERS
Top 4 Non-Technical Causes of Loss
Percentage of Claims Affected
39%
40%
2001
35%
2009
30%
23%
24%
25%
27%
25%
16%
20%
13%
15%
6%
10%
5%
0%
Negotiation and
Contracts
© 2010, X.L. America, Inc. All rights reserved.
Client Selection
Project Team
Capabilities
Communication
Page 14 _ 8-Apr-15
RISK DRIVERS
Negotiation and Contract Issues
No separate
contigency fund
set aside
5%
Contruction phase
services not in
contract or not
fulfilled
8%
Other
8%
Lack of
mediation clause
6%
Did not formally
evaluate
project risks
16%
Contract:
-Not firm's own
-Not industry std.
-Not reviewed by
counsel
2%
© 2010, X.L. America, Inc. All rights reserved.
Contract not in
place before work
started
12%
Deal Breakers
in contract
3%
Unclear or
inappropriate
scope of services
37%
Client-generated
agreement, not
reviewed by senior
mgmt.
1%
Field staff didn't
have/understand
contact
2%
Page 15 _ 8-Apr-15
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
© 2010, X.L. America, Inc. All rights reserved.
Page 16 _ 8-Apr-15
RISK DRIVERS
Client Selection Issues
No formal
review
of client
4%
Client behind in
fee payments
7%
Contractor
selection
4%
Other
3%
Client in poor
financial condition
17%
Client not
receptive to ADR
1%
Client
inexperienced in
design issues
43%
© 2010, X.L. America, Inc. All rights reserved.
Client has history
of claims /
litigation
21%
Page 17 _ 8-Apr-15
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
© 2010, X.L. America, Inc. All rights reserved.
RISK DRIVERS
Project Team Capabilities - Issues
Inexperienced
design staff
50%
Inexperienced
on-site staff
20%
Inexperienced
project manager
18%
Other
4%
Unqualified
back-up staff
2%
© 2010, X.L. America, Inc. All rights reserved.
Project
outside firm's
normal territory
2%
Insufficient number
of staff
1%
Design firm
inexperienced in
project type
3%
Page 19 _ 8-Apr-15
TOP AND BOTTOM PROJECT MANAGERS
Leadership
Top PM
Bottom PM
80
70
60
50
40
30
20
10
0
ve
ss
ss
i
e
r
e
n
n
o-D
ive
ive
g
t
s
r
E
es
se
r
s
g
A
Ag
© 2010, X.L. America, Inc. All rights reserved.
E
o
Eg
ath
p
m
y
t
ng
e
r
-St
ce
ing
n
k
e
i
Ta
si l
k
e
Ris
h/ R
U
y
nc
e
rg
o
uti
a
C
ss
e
n
us
Page 20 _ 8-Apr-15
TOP AND BOTTOM PROJECT MANAGERS
Interpersonal Skills
Top PM
Bottom PM
70
60
50
40
30
20
10
0
y
h
t
pa
m
E
So
© 2010, X.L. America, Inc. All rights reserved.
ity
l
i
b
cia
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a
eg
r
G
ss
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n
us
o
m
om
c
Ac
on
i
t
da
sm
i
c
pti
e
Sk
Page 21 _ 8-Apr-15
TOP AND BOTTOM PROJECT MANAGERS
Problem Solving/Decision Making
Top PM
Bottom PM
80
70
60
50
40
30
20
10
0
tR
s
ion
t
es
a
n
t
gh
i en
u
r
o
r
aO
ho
e
T
d
I
nin
o
s
ea
g
c
tra
s
© 2010,
Ab X.L. America, Inc. All rights reserved.
ss
li ty
ing
i
e
k
b
n
xi
Ta
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k
o
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Fle
s
ut
Ri
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nc
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rg
Page 22 _ 8-Apr-15
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
© 2010, X.L. America, Inc. All rights reserved.
Page 23 _ 8-Apr-15
RISK DRIVERS
Communication Issues
Regular progress
reports regarding
changes not
approved
Project issues and
1%
potential disputes
not handled
correctly
17%
Project staff
not aware of
responsibilities
6%
© 2010, X.L. America, Inc. All rights reserved.
Lack of
documentation re:
changes in scope,
budget, etc.
9%
Scope of services
not explained to
client
13%
Other
3%
Lack of procedures
to identify
conflicts, errors
and omissions 51%
Page 24 _ 8-Apr-15
RISK DRIVERS
Communication Solutions
−
Scope of services
−
−
−
Establish procedures to identify/address
conflicts
−
−
−
−
−
Must be clearly understood by client
Any changes must be documented
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
© 2010, X.L. America, Inc. All rights reserved.
Moving the Curve Forward (CURT)
2
Effort/Effect
1
PD: Pre-design
SD: Schematic design
DD: Design development
CD: Construction documentation
PR: Procurement
CA: Construction Administration
OP: Operation
4
3
PD
SD
DD
CD
Time
PR
CA
1
Ability to impact cost and
functional capabilities
2
3
4
Cost of design changes
Traditional design process
Preferred design process
OP
Graphic originated by Patrick MacLeamy, AIA / HOK
© 2010, X.L. America, Inc. All rights reserved.
Page 26 _ 8-Apr-15
Technical Statistics
Mechanical/Electrical/Process Engineers
MEP ENGINEERS
Who Sues Mech/Elec/Proc Engineers?
77%
Project Owner
81%
11%
Non-Contracting
3rd Party
3%
7%
Contractor
or Subcontractor
10%
Other
% of Claims Dollars
5%
0%
© 2010, X.L. America, Inc. All rights reserved.
% of Claims Count
6%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Page 28 _ 8-Apr-15
MEP ENGINEERS
Types of Damages
65%
Economic
Loss
62%
28%
Property
Damage
Bodily Injury Other
37%
4%
0%
2%
All Other
% of Claims Count
1%
% of Claims Dollars
Bodily Injury Construction
0.4%
0%
0%
© 2010, X.L. America, Inc. All rights reserved.
10%
20%
30%
40%
50%
60%
70%
Page 29 _ 8-Apr-15
MEP ENGINEERS
Claim Trigger
Construction
Product
Budget
Failure
Overruns
6%
5%
Construction
Defect
12%
Construction
Schedule
Delays
5%
BI - Post-Const.
3rd Party
4%
Other
6%
Design Error
62%
© 2010, X.L. America, Inc. All rights reserved.
Page 30 _ 8-Apr-15
MEP ENGINEERS
Frequency & Severity (by project type)
22%
Comm/Ind
<= 9 Stories
15%
11%
12%
All Schools/
Colleges
22%
30%
11%
Process Mfg
Systems
7%
9%
10%
Utilities
3%
10%
% of Fees
9%
Hospitals
% of Claims Count
7%
13%
% of Claims Dollars
7%
Retail Malls
2%
0.2%
0%
© 2010, X.L. America, Inc. All rights reserved.
5%
10%
15%
20%
25%
30%
35%
Page 31 _ 8-Apr-15
MEP ENGINEERS
Elements Most Often Involved
49%
HVAC
60%
16%
Electrical
23%
9%
Plumbing
4%
Equipment
4%
3%
Lighting
3%
2%
% of Claims Count
% of Claims Dollars
Drinking Water
System
3%
1%
0%
© 2010, X.L. America, Inc. All rights reserved.
10%
20%
30%
40%
50%
60%
70%
Page 32 _ 8-Apr-15
Risk Management Cycle
Improved Quality
Improved
Project
Management
Internal
Investment
Increased Profit
© 2010, X.L. America, Inc. All rights reserved.
Client Selection
Contracts
Match
Capabilities
Projects
Staff
Revenue
Communication
Page 33 _ 8-Apr-15
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
© 2010, X.L. America, Inc. All rights reserved.
Page 34 _ 8-Apr-15
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.
© 2010, X.L. America, Inc. All rights reserved.
Page 35 _ 8-Apr-15
Questions?
Diane Mika
831-657-2568
Diane.Mika@xlgroup.com
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