XL Design Professional Study Identifies Top Risk Drivers Among Architects and Engineers

A new study conducted by XL Design Professional confirmed that structural engineers remained the high-risk discipline when it comes to professional liability claims. And, no surprise, condominiums continue to top the charts as the riskiest type of construction project. What may be surprising though, are the prevalence of nontechnical factors that often lead to these claims.

XL Design Professional's "Risk Drivers^sm" study analyzes 8,687 claim files from 1996 to 2000, representing $396 million in claims payments. It measures relative risk of design work by design discipline, project type, and other factors and reveals claims trends since XL Design Professional’s last major claims study covering the years 1989 to 1995. New to the Risk Drivers study is the identification of the top nontechnical factors that contribute to claims.

Discipline: Structural Engineers Still Riskiest, Architects Gaining Ground

XL Design Professional’s Risk Drivers study revealed that structural engineers are not only more likely than other design professionals to experience claims, but the claims are typically more costly. Structural engineers accounted for 11.3% of claims count and 16.1% of claims dollars among XL Design Professional insureds studied. Yet, structural engineers accounted for only 6.7% of the fees generated by this group of XL Design Professional policyholders.

For purposes of the study, an "average" risk is one where percent of fee dollars earned by the design discipline (a measure of the total work volume that creates risk exposure) and percent of claims dollars paid out by XL Design Professional on behalf of that discipline are roughly equal. When percent of fee dollars is higher than percent of claims dollar, the discipline is considered a lower-than-average risk. When percent of claims dollars is higher than percent of fee dollar, then it is considered a higher-than-average risk.

Among the other design disciplines:

Civil engineers are lower-than-average risks, representing 21.5% of claims dollars paid by XL Design Professional, while earning 29% of fees earned by XL Design Professional insureds.
Electrical engineers are also low risk, accounting for only 1% of claims dollars paid and 4.2% of fees earned.

Mechanical engineers are slightly lower-than-average risks, accounted for 7.6% of claims dollars paid and 8.8% of fees earned.

Architects are higher-than-average risks, representing 44% of claims dollars compared to 39.6% of fees. What’s more, architects experienced the greatest increase in risk exposure since the previous XL Design Professional study, when they accounted for 35% of fees and 37% of claims dollars paid.

Project Type: Condos Remain Killers

Residential condominiums remain a professional liability nightmare, the XL Design Professional study confirmed. While XL Design Professional insureds generated only 0.7% of their fees from condo work, these projects accounted for 5.4% of all XL Design Professional claims and ate up 8.1% of claims dollars paid out by XL Design Professional. Other high-risk project types were:

Wastewater/sewage: 1.4% of fees versus 5.3% of claims dollars paid.
Residential custom homes: 3% of fees compared to 5.3% of claims dollars paid.

Schools through grade twelve: 6.4% of fees versus 7.5% of claims dollars.
Residential subdivisions: 6.1% of fees and 8.3% of claims dollars paid.

Among the lowest-risk project types were malls/retail (6% of fees and only 3.1% of claims dollars) and commercial/industrial buildings of nine or fewer stories (10.7% of fees and 7.6% of claims dollars).

Non-technical Factors Leading to Claims

By studying 17,300 closed claim and loss prevention files representing $665 million in claims payments from 1989-2000, XL Design Professional identified the top four non-technical factors that contribute to claims. They are:

Communication issues -- a contributing factor in 27% of claims files by count and 22% of the claims dollars paid out.

Project team capability issues -- a contributing factor in 24% of the claims count and 21% of claims dollars.

Client selection -- a factor in 16% of claims by volume and 18% by claims dollars.

Negotiation and contract issues -- about 13% of claim volume and 17% of claim dollars.

The significance of these findings, said Steve Mauck, XL Design Professional’s Chief Claims Officer, is that design firms can significantly reduce the chances of claims by improving their practice management skills. Based on this study, XL Design Professional and its partner Professional Liability Agents Network (PLAN) is providing its policyholders with education and training to do just that.

"We’ve found that if you look only at the technical cause of a claim, you miss a valuable loss prevention lesson" said Mauck. "For example, if the technical cause of a claim is a leaky roof, the loss prevention message is not ‘don’t design or build roofs.’ Rather, the right message might be ‘improve client communications, tighten up documentation and improve construction observation.’ These non-technical factors are at the heart of most disputes and set the scene for errors, omissions and claims. They also represent a controllable risk factor."