The facts

Pierre, a structural engineer, and the business owner of an engineering firm—whose firm also has professional liability insurance with Victor—was hired by a developer for the structural design of a 60 unit, six–story commercial building. The firm’s scope of work included design, contract administration and periodic field review services during construction. 

Little did Pierre and his firm know that lurking beneath the surface of the completed constructed building were hidden defects that would soon lead to a legal dispute.

The developer entered into an agreement to sell the building; a pre-purchase building condition report and review of the building’s structural design by the prospective purchaser’s engineer identified structural issues and flaws with the building’s columns and punch sheer capacity.  Pierre and the employees within the firm responsible for the design conducted their own internal review to determine the validity of the allegations and subsequently reported a claim to Victor after agreeing with the findings of the report. 

An expert confirmed that the suspended concrete slab that supports the six-story building was not supported by the columns and was at risk of failure.  Additionally, many flaws were identified including undersized concrete pad footings, missing framing details on the shear walls and an insufficient rebar installed which could lead to the columns puncturing the slabs.   

The firm found itself having to deal with a significant design deficiency issue, and for life and safety reasons, had to contact Victor’s claims team right away for help in addressing the issue promptly. 

So, what went wrong? 

Experts determined the most efficient way to remediate the building involved adding ten new columns and the installation of additional hold down straps at an estimated hard cost of $2 million in damages plus consequential damages to relocate tenants during remedial work.

The structural engineer faced 100% liability in the matter. The firm failed to identify the deficiencies in their design, leaving Pierre’s firm exposed to potential legal consequences. 

The result

After six months of remedial work, the total claim was settled for $1.6 million. The engineering firm contributed the entire amount towards the settlement. The insurer’s expenses amounted to $85,000! 

Now let’s talk about deductibles.

Pierre’s engineering firm as the policyholder in this claim example had a per claim deductible under their Victor Engineers in Private Practice Professional Liability policy of $50,000 which applied to damages only. The policyholder’s contribution towards damages in the $1.6 million at the time of settlement was $50,000. The insurer covered the remaining $1.55 million in total damages along with 100% of the $85,000 in total claims expenses incurred at the onset of the claim to investigate, defend and indemnify the policyholder. 

Risk factors

Risk factor #1

Deal with problems promptly. Victor Canada’s experience in managing claims has demonstrated that not taking a proactive approach when a problem is identified often results in the problem becoming both more complex and costlier to resolve with the passage of time. This is a compelling reason consultants should deal promptly with problems while carrying out their mandates.   

Risk factor #2

Conduct a peer review and internal check list. A thorough review of documents and drawings before they leave the office is a good way to prevent errors and claims, especially when documents are produced under pressure. In the case of both specifications and drawings, an experienced team member should try to assume the role of a contractor or subcontractor and make sure the material is comprehensible. If it is not, the best case is that contactors will ask a lot of questions. In the worst case, they won’t.

*This claim scenario is for illustrative purposes only. Please remember that only the insurance policy can give actual terms, coverage, amounts, conditions and exclusions.