THE PUA PERSPECTIVE:

UPDATES ON OUR ADMITTED A&E PROGRAM

We have been busy at PUA. Since we launched the program in late 2014, we have made significant progress in creating a program that not only fits the needs of this unique industry, but fits the needs of our agent partners. We are the exclusive underwriter for Arch Insurance Group (rated A+ XV Superior by AM Best), and our product is positioned for architecture and engineering firms with billings under $20M and design/build/contractors firms with contract revenues under $150M. 

We know that the market is competitive, and over the past year we worked hard to:

 develop one of, if not the broadest policy forms available in the marketplace

 gain admitted status on the A&E form in all states (except for MA which should be admitted by 3/1/16 and LA where we will not be writing on an admitted basis)

 create a robust risk management program run by expert Kent Holland of Construction Risk, LLC.

We are proud that we have grown our program while maintaining the excellent service standards that are the foundation of PUA. Below you will find a few more highlights of our program.

Claims Handling:

Arch Insurance Company handles all claims under our program. Their team is led by a group of attorneys with over 50 years of experience handling A&E claims. Arch has been underwriting A&E professional liability for over a decade and our claims team is well-versed in the industry.

Broad Coverage for Contractors:

Contractors / Design Build / Construction Management is a major niche within our A&E program. As mentioned above, our policy forms are amongst the broadest forms available in the marketplace. In fact, we offer two first party coverages for contractors under the CPP+ form as follows:

1. Protective Indemnity - Indemnifies named insured excess of design professional's PL coverage for costs the named insured incurs (and is legally entitled to recover) as a result of negligent acts, errors and omissions of design.

PUA can offer up to $5M in excess limits with Lloyds over other carrier's professional liability policies as follows:

 Full Excess Limits Policy

 Specific Project or Client Excess Limits Policy

If you’d like to pursue excess limits with PUA, please forward a copy of the primary policy, a copy of the application that was completed for the primary policy, and current loss runs for further review to sandip@puainc.com. If coverage is to be limits to a specific project or client, we’ll also need a specific project/client supplemental application.

RISK MANAGEMENT

PIERCING THE ARCHITECTURAL

FIRM'S CORPORATE VEIL

Kent Holland, J.D.

ContructionRisk, LLC

The sole shareholder/director/officer of an incorporated architectural firm was held jointly and personally liable to pay a judgment awarded against the corporation. The court found that the corporation was operated as the alter ego of the individual. Among the points cited by the court for piercing the corporate veil were that when it entered into a contract with the real estate developer that subsequently filed suit against it for breach of contract, the firm was grossly undercapitalized and the individual had been using the firm "as a mere instrumentality or as his alter ego. He did not observe the required corporate formalities."

The court also found that a “fraudulent transfer” took place when, after judgment was obtained against the firm, the individual created a new architectural firm and transferred the old firm’s assets to it. This case is a bit unique due to the reported egregious circumstances, but it certainly provides some useful insight into things a sole owner of a small firm should not do if he or she wants to avoid being tagged with personal liability for actions done under the auspices of the corporation. Green v. Ziegelman, 2015 WL 2142690 (Michigan 2015) 

The corporation had represented itself to plaintiffs to be an ongoing concern that was capable of doing the design and construction management for a significant development project. It turned out that the firm had not done any significant work for over fifteen years, and because it had no revenue from operations, the firm was entirely dependent on the individual architect for cash to pay its expenses. The evidence showed that over the years, the architect, in his personal capacity or through another entity, had lent over $630,000 to the corporation to cover its expenses. He never required the firm to execute a note or repay any of the funds. The individual also caused another of his entities to lease space to the corporation for approximately 20 years without any lease and without any payment of rent.

The appellate court affirmed the trial court’s decision to pierce the corporate veil. Click here to read the decision from the appellate court on our blog. This decision demonstrates the importance of following appropriate protocols and formalities for a corporation, and maintaining required indicia of a corporation to show that it has a viable and genuine existence separate and apart from the individual.

About the author: J. Kent Holland, J.D. is founder and president of a the firm, ConstructionRisk, LLC, providing risk management services for PUA and Arch Insurance Group, as well as to owners, design professionals, contractors and attorneys on construction projects. He is publisher of the ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  

A SKETCH OF THE INDUSTRY

RECENT A&E NEWS & TRENDS

A recent survey of A&E firms conducted by Tim Corbett of Smart Risk, revealed that top business-related concerns for firms in 2016 include:

 Increasing firm profitability 

 Finding new qualified staff with appropriate technical and project management skills 

 Negotiating appropriate project fees

 Managing the rising costs of running a firm

 Identifying new clients and markets

 Enhancing firm business planning

 Marketing

Finding the right talent with the appropriate skills was high on the list of concern.The construction sector has played a key role in lowering the unemployment rate, adding 159,000 payroll positions through the first ten months of 2015, 31,000 of which were added in October alone. Construction jobs accounted for almost 8% of payroll gains in 2015. However, many design firms are seeing a talent shortage. Following the recession, many design professionals left the industry to pursue other professional careers in technology. Some firms state they would increase staff by 15-20% if people were available.

We have also heard a lot of talk in the industry about fiduciary duty owed by architects and engineers. While A&E firms are aware that liability exists for their negligent acts, errors, and omissions; many would be surprised that several jurisdictions have ruled that they owe a greater fiduciary duty to their clients. A fiduciary duty is a legal duty to act solely in another party's interests. Parties owing this duty are called fiduciaries. The individuals to whom they owe a duty are called principals. A fiduciary duty requires the fiduciary to exercise the utmost good faith and loyalty to the principal.

In cases involving A&E firms, a fiduciary obligation may arise between design professionals and their clients requiring a greater standard of care over the traditional professional duty of care. 

In California, the recent case of City of Victorville v. Carter & Burgess illustrates this trend. In this case, the A&E firm was hired to perform a feasibility study for this city. The city terminated the project after a series of delays and cost overruns. After reviewing the language in the parties' contract, the court ruled that a greater standard of care was owed, and that the A&E firm breached a fiduciary duty to the city by not properly supervising the project’s development. Specific language in the contract contract referred to the relationship between the parties as more then an arms-length business relationship and instead, as one of “trust and confidence." It is important that all A&E firms review their contracts carefully with their legal counsel to eliminate and even disclaim any language that creates a fiduciary duty.

PUA'S RECENT SUCCESSES

PUA recently wrote the following 10 accounts. We are able to write architecture and engineering firms with billings under $20M and design/build/contractors firms with contract revenues under $150M.

 Electrical engineering firm in CA ($16M in billings) - $2M/4M limit and $25K deductible for $82,590

 Landscape architecture firm in CA ($1.4M in billings) - $2M/2M limit and $25K deductible for $36,253

 Architecture firm that also does electrical & structural in OK ($10M in billings) - $2M/2M limit and $50K deductible for $55,118

 Architecture & planning firm in CA ($2.5M in billings) - $2M/2M limit and $100K deductible for $28,525

 Civil engineering firm that also does electrical engineering in CA ($2M in billings) - $2M/2M limit with $3M SPX and $15K deductible for $41,725

 Electrical contractor in FL ($23M in revenue) - $1M limit and $10K deductible for $10,000

 Design/Build contractor in VT ($5.7M in revenue) - $1M limit and $25K deductible for $8,900

 Design/Build contractor in ME ($21M in revenue) - $1M limit and $7,500 deductible for $18,667

 Design/Build contractor in IL ($75M in revenue) - $5M limit and $100K deductible for $75,000

 HVAC Design/Build contractor in MA ($25M in revenue) - $2M limit and $10K deductible for $18K

Send us a submission and become a success story!