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Schinnerer's A&E program AIA and NSPE commended program began in 1957 By Elisabeth Boone, CPCU If you were around in 1957, you remember Buddy Holly and the Crickets, two-tone Cadillacs with monster fins, hula hoops, and ducktail haircuts. Back then, there was a “whole lotta shakin’ goin’ on”—not just in American pop culture but in the insurance world as well. It was in 1957 that Victor O. Schinnerer & Co., Inc., which had been involved in the insurance business since 1938, initially as an insurance broker and then an underwriting manager of professional liability and specialty insurance programs, launched the first professional liability policy designed specifically to address the exposures faced by architects and engineers. Underwritten by CNA since its inception, the program today insures some 22,000 design and construction professionals and offers an array of services to help insureds manage risk and control claims costs. As Schinnerer celebrates the 50th anniversary of its A&E program, its current leaders look back on past accomplishments and ahead to the challenges of meeting insureds’ needs in a rapidly changing market. In an interview with Rough Notes, Lorna Parsons, managing director and head of Schinnerer’s Construction Industry Group, and Tom Porterfield, vice president of construction risk management, traced the history of the program and how it has evolved over the last 50 years to meet insureds’ emerging needs. Parsons holds a degree in architecture from Stanford and began her insurance career as a broker in San Francisco in 1979. She joined Schinnerer in 1979 and in 1997 assumed her current position. Porterfield, who has a strong background in managing commercial liability claims, has been with Schinnerer for 31 years. For 25 of those years, he has been involved in construction risk management. A matter of chance The Schinnerer and CNA professional liability program for architects and engineers originated with a chance meeting in 1955 between Schinnerer’s founder, Victor O. Schinnerer, and Leon Chatelain, an architect who later would become president of the American Institute of Architects (AIA). Both men were involved in fund raising for Easter Seals in Washington, D.C. Chatelain told Schinnerer that the AIA was having problems arranging suitable professional liability insurance for its members. At that time, coverage for architects and engineers was written only at Lloyd’s of London, and the AIA wanted a U.S.-based program. Chatelain asked Schinnerer to assist the AIA in identifying an insurer that would be responsive to its members’ needs for both insurance and a risk management educational system. In the course of working with Schinnerer to obtain an appropriate policy and develop risk management educational materials, the AIA was joined by the National Society of Professional Engineers (NSPE). In 1955 it was announced that Victor O. Schinnerer & Co. would serve as the managing general agent for a new insurance program. The AIA, NSPE, and Schinnerer made a joint decision to replace the term “errors and omissions,” which was commonly used to describe the coverage, with the term “professional liability insurance.” In 1956, Continental Casualty Company (later to become a member of the CNA Insurance Companies) agreed to underwrite the policy if Schinnerer would serve as the program administrator and underwriting manager. The program was test marketed through independent brokers, and the first official policy was issued on June 4, 1956, to the firm of AIA President-elect Leon Chatelain. In January 1957, the AIA executive committee deemed the new policy a Commended Program and approved making it available to members on a national basis. Throughout its 50-year history, the program also has been a Commended Program for the members of NSPE. Steady growth “We’ve grown steadily since 1957,” Parsons says. “Over time, we’ve added some new customer groups.” In addition to architects and engineers, the Schinnerer and CNA program is now available to design/build firms, land surveyors, landscape architects, environmental consultants and engineers, and specialty construction consultants. “Most recently, we’ve begun to offer a range of property/casualty coverages to our insureds,” Parsons says. “There’s a lot of blurring between the general liability and professional exposures, and we can tailor our coverages to fill in those gray areas.” Schinnerer now provides directors and officers, employment practices liability, fiduciary liability, pollution liability, a businessowners policy (for small to medium-sized firms), commercial auto, inland marine, a commercial package policy (for design/build, large, and complex firms), umbrella, and workers compensation. Schinnerer classifies eligible firms into three categories: small firms (annual billings of $500,000 or less); medium-sized firms (annual billings between $500,000 and $5 million); and large firms (annual billings in excess of $5 million). Policy enhancements Over time, the Schinnerer and CNA program has undergone numerous changes to keep pace with develop-ments in the design/build arena. “I think the evolution of our policy is somewhat like the evolution of the fire policy into the homeowners policy,” Parsons remarks. “It started off as a simple contract with a whole list of exclusions. In some cases you could buy back an excluded coverage, and in other cases you couldn’t. “For example, when I got here in the late ’70s, the policy had exclusions for bridges, tunnels, and dams, which engineers build every day,” she continues. “You had to buy those back. Today our policy includes as many coverages as possible inside the form, so the architects and engineers who own the policy don’t have to stop and ask permission to get coverage. They can focus on practicing appropriately and employing good risk management.” What’s more, Parsons says, the policy’s scope has been broadened to provide worldwide coverage. “Several years ago we took the word ‘negligence’ out of our definitions so our policy could be used for international practice,” she says. “In response to architects’ and engineers’ concerns about the claims-made policy form, we added coverage for circumstance reporting and now offer free pre-claims assistance,” Parsons continues. “We’ve found that getting on top of things early and quickly helps get them settled. It’s good for our architects and engineers because they don’t have to spend time on these matters, which is nonbillable time. It’s good for us because generally the faster something is settled, the cheaper it is.” Some things change … some don’t As Parsons reflects on Schinnerer’s 50 years of insuring architects and engineers, she sees certain constants in the business. “While technology and new materials have changed how projects are designed, and new partnerships among the many disciplines in the construction industry have changed the way projects are delivered, what strikes us is how similar the causes of claims today are to what they were 25 or even 50 years ago,” Parsons observes. “Clients still represent about 65% of the dollar value of claims brought against our policyholders,” Porterfield notes. “When a claim is brought that may allege professional negligence, in my experience the reason generally is unfulfilled client expectations. The client did not get the project he expected or the cost he expected, or the project took longer to complete. When that happens, the client’s attitude is, ‘Someone has to be responsible,’ so it’s either the design professional or the contractor.” A key to preventing such claims, Parsons remarks, is establishing and maintaining clear communication throughout the life of a project. “Architects and engineers need to communicate clearly with their clients; they need to design according to codes and standards; they need to coordinate with other parties like subcontractors and vendors; and they need to meet owners’ expectations,” she asserts. “Those challenges are the same today as they were 50 years ago—but today, instead of writing a letter to a client, there’s a flurry of e-mails, and pieces of information are exchanged on a very casual basis,” Parsons says. “Instead of using a T square and a drafting board, today’s design professionals rely on sophisticated software.” Parsons cites other emerging trends. “People today want green design,” she says. “People want to involve new parties, such as construction managers. One of the hottest things right now is collaborative design: In order to deliver projects on time and on budget, the contractors, designers, and vendors all cooperate and agree to be jointly liable, often in return for a share of the savings if the project is delivered early,” Parsons explains. In these situations, she points out, “Negligence is in no one’s vocabulary.” Legal landscape Porterfield says shifts in the legal climate have had a significant impact on the evolution of the Schinnerer program. “Back in the late 1950s and early ’60s, some dramatic changes took place that altered the claims picture,” he says. “Up until that time, design professionals were really not the target of claims. In the early and mid-’60s, a few courts expanded the potential legal liability of design professionals to parties other than their clients. In one case in New York and another in Texas, where members of the general public had been injured, they ended up suing not only the owner of the property but also the contractor and the design professionals. “Historically, the courts would throw that kind of case out, saying there’s no privity of contract, no theory of negligence,” Porterfield says. “In the New York and Texas cases, the courts took the view that if the architect and engineer did something that caused injury to others and they were negligent in doing so, then the injured parties should have the right to recover. “All of a sudden, architects and engineers went from having one potential plaintiff against them, the client, to facing suits from members of the general public, construction workers, contractors, subcontractors, and so on,” Porterfield explains. “The legal system became much more liberal at that time.” Turning to the relationship between the design professional and the client, Porterfield says, “I think clients’ expectations began to change, and many clients today view a design professional’s work as a product and not as a professional service. So anytime the design professional makes a mistake that costs the client money, the client thinks he or she should be able to recover. Today we have more attorneys, more claims, and more lawsuits.” Risk management From the beginning, the Schinnerer program has stressed its comprehensive menu of risk management and educational services. The company’s Risk Management Resources Manual highlights the value-added services, seminars, and publications available from its Risk Management Services Department. Each year, Schinnerer offers a series of regional seminars for design professionals. The titles of this year’s events indicate the broad scope of relevant issues addressed: Best Practices for Design Liability Risk Mitigation; Tools for a Successful Practice: Managing Liability and Business Property Exposures; Don’t Let Green Design Cause Red Ink; and Critical Issues in Construction Contract Administration. The Voluntary Educational Program (VEP) is a Web-based continuing education program designed to teach insureds how to identify, respond to, and control the various sources of risk inherent in their performance as design professionals. Insureds who complete the two-part program are eligible to earn continuing education credits. The VEP was developed as a collaborative effort between Schinnerer and CNA and the Risk Management Committee of The American Institute of Architects (AIA) and the Professional Liability Committee of the Professional Engineers in Private Practice Division of the National Society of Professional Engineers (NSPE/PEPP). A publication titled “Managing Risk Through Contract Language” helps policyholders understand legal and practice management concerns so they can develop and negotiate professional services agreements. A policyholder newsletter, “Guidelines for Improving Practice,” highlights risk avoidance strategies, public policy issues relevant to design professionals, and tools that help support and manage professional practices. Schinnerer has built and maintained a vast database of claims information that is broken down by region, project type, size of firm, frequency, and severity. Policyholders can access this database online and use its findings as a loss prevention and risk management tool. Broker relations A vital element in the success of any program is the quality of the distribution force. Schinnerer places a high value on its relationships with the brokers who sell the A&E program. “We do business with about 8,800 brokers,” Parsons says. “About 35 of them are what we call AE Choice Brokers; these are specialists who have over $1.5 million in premium for this line of business. As you can tell, we do business with a lot of generalists, from mega-brokers to small local agents. Size doesn’t matter; we’ll work with them all,” Parsons asserts. “We’ve made a strong effort to reach out to generalists,” she says. “A few years ago, we looked at the marketplace and realized that there are a lot of generalists out there. We thought that if we could get just one or two pieces of business from every generalist across the United States, that’s a tremendous amount of volume.” The year 1957, when the Schinnerer and CNA architects and engineers program was launched, also saw the launch into space of America’s first astronaut, Alan Shepard. Both initiatives took flight, and the Schinnerer program, like the U.S. space program, is still flying high. * For more information: |
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