What projects result in the most claims against design professionals?

E010100Most of you have probably already guessed the answer to this question. From 2004 – 2013, residential projects (houses/townhouses, condominiums, and apartments) resulted in 31% of all claims filed in the Schinnerer professional liability program (frequency rate). Residential projects also had a high severity factor (dollars paid by CNA). The average indemnity payment was just over $152,000, and the average indemnity payment for the top 10% of residential claims was $507,000. And keep in mind, that’s just the money CNA paid out over and above policyholders’ deductibles. Residential projects not only represented a high severity-to-frequency ratio, but when compared to reported billings for professional services, these projects were at the top of the risk-to-reward ratio.

But before you decide to never again design a residence, you need to investigate further. Claims change depending upon the type of project, your discipline, and the location of the project. For example, condo projects were a relatively high risk for architectural services, but were a lower risk for mechanical, electrical, and plumbing engineers. In the West region (AK, AZ, CA, CO, HI, ID, MT, NM, NV, OR, UT, WA, and WY), houses/townhouses represented the highest frequency of claims for architects in our Large Firm program (over $5 million annual billings), but in the East, South and Midwest regions, schools and colleges projects had the highest frequency of claims within the same group.

It’s also important to examine the problem areas associated with a given project type to help determine how you may want to respond to a specific risk. The worst problem areas for residential projects were interior construction, which was first in claims count and dollars spent, closely followed by building superstructure and foundation-related claims.

For more information on frequency and severity of claims for various projects in each region, and examples of the types of claims that these projects create, refer to our benchmarking information and claims and case studies. Also, look for my next blog post which will provide recommendations for managing the risks of residential projects.

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