Why Clients Require You To Carry Insurance

by: James Cochran

If you’re in engineering, you’ve probably encountered plenty of situations in which you’re required to carry some level of insurance. Maybe you run a small engineering consultancy with a few employees, or perhaps you’re a solo professional engineer. Either way, you might wonder why all that coverage is needed.

You already know the deal: If the developer says you and your engineers need insurance, you have to get it in order to get the job. However, in virtually all cases, getting the required insurance coverage can be both within your means and beneficial for your business.

Commonly, clients require proof of some or all of the following three types of insurance from professional engineers:

General liability insurance

This type of liability insurance for engineers covers damage or injury to your client’s people or property (excluding professional liability, of course). When it comes to this type of insurance, engineering consultants often ask: Do I really need this coverage? After all, what are the odds that someone making drawings in his own office will damage a client’s property?

Don’t take it personally. The truth is, client companies often require every vendor who may come to their office or job site – from construction crews to delivery people to engineers – to show proof of general liability insurance. Often, it’s the corporate risk managers who make the call, requiring insurance for engineers and all other contractors because they want to reduce the company’s liability risk.

Thankfully, general liability insurance is affordable, and professional engineers with liability insurance can rest easy knowing that if one of their employees accidentally injures someone or damages something on a job site, it’s covered. Your landlord may also require you to carry general liability insurance if your engineering consultancy has its own office space.

Professional liability insurance

In short, professional liability insurance is malpractice insurance for professional engineers. It covers you for errors and omissions you or your engineering consultants make on the job. There’s a simple reason that clients require professional liability insurance for engineers: You’re only human, and people do make mistakes.

Your client’s greatest risk in hiring you as an engineering consultant is that you might make a miscalculation or error that results in a lawsuit or other financial loss for your client. Even though you may be just an independent professional engineer or head up a small firm, your client wants you to have enough financial backing to compensate the company for any potential losses.

For example, suppose your engineering firm is hired to design a storm drainage system for a new shopping center. Once construction is complete, the developer discovers erosion and subsequent damage to the parking areas, then files suit against you, claiming that your design was negligent. Without professional liability insurance, engineers have to pay for their own legal defense as well as any settlement the court orders them to pay.

Without professional liability insurance, engineers are fully liable for the exponentially increasing costs resulting from a claim of errors or omissions. And that’s a dangerous situation to be in, especially for a small firm.

Workers’ compensation insurance

For professional engineers, workers’ compensation insurance can be particularly confusing. Some states require that companies carry it, while others don’t. If your client has its headquarters in a state that requires workers’ compensation insurance, there’s a good chance that your engineering firm will be asked to carry it – even if it’s not required in the state where you live or work.

The reason: In some states, if you’re hurt on the job, your client has to cover you with its own workers’ compensation policy. Additionally, in some states, your clients’ insurance carriers will bill them for coverage for all subcontractors that don’t provide their own certificate of coverage. Both situations mean that your client pays more in premiums.

If your engineering company has more than one employee, it makes sense to protect yourself and the people who work for you with workers’ compensation coverage. If you’re an independent professional engineer and have your own health insurance, it may be redundant. But ultimately, securing workers’ compensation insurance can help you get the job – and if you don’t get the required coverage, someone else will.