By Samuel M. Vulcano, Esq.
Your professional liability policy likely includes a provision that reads something like this:
“If during the Policy Period the Insured reports a circumstance which may lead to a Claim the Insurer, at its option, may investigate and seek to mitigate said circumstance as it deems appropriate. Until such time that a Claim arising from said circumstance is made the cost of investigation and mitigation shall be the Insurer’s.”
The benefit provided by this provision is commonly referred to as “Pre-Claim Assistance”. It’s free and can be a valuable tool to help you manage risk when a project isn’t going quite right.
To understand when Pre-Claim Assistance may be available you need to understand what a “Claim” is and what it isn’t. A “Claim” is typically defined by your Professional Liability Policy as “a demand for money or services naming you and alleging a wrongful act”. Let’s break that definition down. A “Claim” doesn’t arise until 1) a demand is made that you pay money or provide services free of charge, and 2) the party making the demand asserts that you committed an error, omission or other wrong in the performance of your professional services.
So, if you receive a letter from a client stating that “…The plans you prepared for my project contain numerous errors which will require extra payment to the Contractor in excess of $100,000 to correct. I intend to hold you responsible for any and all associated extra cost…” a Claim has been made. You need to notify your insurer immediately and the costs of handling the Claim will be subject to the deductible or self-insured retention provisions of your policy.
On the other hand, if you receive a letter from a client stating that “…I am not at all happy with the services you have provided to date. Your fees seem excessive and the plans you have produced so far are not what I hoped they would be. I would like to schedule a meeting to discuss this project…” no Claim has been made yet since there has been no specific demand for money or services and no specific allegation of error. “Yet” is the operative word in the preceding sentence. Although no Claim has been made it isn’t hard to imagine that the situation could ultimately lead to a Claim. This is the type of circumstance to which Pre-Claim Assistance may apply.
In most cases, if you notify your insurer that such a situation has arisen on a project you will be provided with a lawyer at the insurer’s expense (a/k/a The Sugarman Law Firm) to help you evaluate and manage the situation. Insurers are in the business of managing risk. Insurers offer Pre-Claim assistance at their expense because they know that the potential liability from a bad situation can often be minimized or eliminated if the situation is managed correctly.
We regularly provide Pre-Claim Assistance at the Sugarman Law Firm and have a good deal of experience helping Design Professionals navigate difficult circumstances. Circumstances appropriate for Pre-Claim Assistance comes in many varieties so that it is difficult to provide a definitive list. However, as an experienced Design Professional you will intuitively have a good sense of when things are heading in the wrong direction on a project. Here are some common examples of circumstances that are appropriate for Pre-Claim Assistance:
Clients refusing to pay or late to pay outstanding fees
Contractor begins documenting extra costs and/or extended General Conditions
An accident occurs on the construction site resulting in an injury
A subpoena seeking records or testimony is served on the Design Professional
The Owner schedules a meeting with the Contractor and Design Professional to discuss project issues
As a Design Professional you accept a high degree of risk relative to the compensation you receive for a project. The first step in managing that risk is negotiating a strong written contract. In many cases, the next step may be seeking Pre-Claim Assistance.