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Condominium design and construction continue to present a more difficult exposure for which the probability and severity of loss are significantly higher than other construction exposures. Residential condominiums present a higher exposure than commercial condominium units because they are occupied 24/7, and owners have more emotional attachment to their homes and personal affects.
High-risk projects. When something goes wrong in the design or construction of condominiums, the flaw is likely repeated throughout all units. As a result, there are multiple claimants involved, with damages aggregated across the condominium complex. A minor issue that may not have been pursued for one owner can be addressed in a class action suit, with the legal bill shared among all claimants. The ability to share the effort and expense of filing a claim or suit, along with the aggregate nature of the claim across all units lead to a higher frequency and severity of claims.
Disappearing developers. In addition, there are many developers coming into an area for one or two projects, with no ties to the community, building cheaply constructed structures. Some developers disappear quickly after finishing a project, and when problems begin to surface, the design professional is the only one around. In addition, some architects and engineers are not asked to provide construction phase services, so they are not involved long enough to observe whether or not the contractor builds the structures according to the design.
Schinnerer's approach to condominium work. We're concerned about the exposure presented by condominium design and construction, and its impact on the rates in our Design Professional Liability book of business. At the same time, we share your worries about the availability of insurance for design professionals involved in condominium projects. The commending societies, AIA and NSPE, asked us to do everything we can to make coverage available for their members. So our goal is to write firms that have experience and a good loss record in designing condominium projects. Capping the amount of condominium work for acceptable firms didn't necessarily accomplish that goal. Previously, we imposed a cap of 15 - 20% condominium work for risk acceptance. However, we recognized that this strategy didn't necessarily put us in the position of selecting quality condominium designers. As a result, we've shifted our focus from the percentage of work done to the experience of the professionals and the manner in which they approach condominium projects.
Introducing the Supplemental Application. To that end, we've developed a supplemental application to capture the information we need to evaluate the manner in which condominium project exposures are handled. Our new focus is on demonstrated expertise, relationships and project selection. Each acceptable firm will be priced according to our evaluation of each of these categories. In addition, some consideration will still be given to the overall amount of condominium services performed. The overall exposure will continue to generate a surcharge. The degree to which a firm successfully manages their exposure will drive the amount of the surcharge, rather than a singular focus on the percentage of services performed. These changes will keep our focus on quality versus quantity, both in eligibility and pricing.
Download the Supplemental Application as a PDF.
We look forward to our continued partnership in providing quality risk management and insurance services to design professionals.
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This information is for illustrative purposes only and is not a contract. It is intended to provide a general overview of the plan described. Please remember only the insurance policy can give actual terms, coverage, amounts, conditions and exclusions. Program availability and coverage are subject to state regulatory approval.
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