The top risk management threats for architects

Contractor liability

Architects often hire contractors to help them complete projects, which adds exposure to risks. Depending on the contract you sign with a client, you can be legally responsible for any work mistakes that your contractors make.

To help manage contractor risks, verify the licenses of all third parties that you hire, and make sure that they all carry their own professional liability insurance. If you want to further reduce your exposure to risk, you could ask to be added to their policy as an additional insured, which means that the contractor’s insurance carrier would defend you if you were sued for negligence because of their actions.

Client miscommunications and shifting project scopes

When a project doesn't go according to plan, clients can file lawsuits against the architect, and miscommunication is often a factor. Many architects point to shifting project scopes as sources of disputes with clients, which can lead to lost wages, hard feelings, and eventually lawsuits.

Make sure that the contract you sign with the client details all the terms of your work – including deliverables, deadlines, and pay rate – so both parties have everything in writing. If a project’s scope changes or you take on more responsibilities, it’s a good idea to modify and re-sign the contract. Regularly check in with the client throughout the project so that you can manage expectations and stay aware of new or shifting priorities.

Again, professional liability insurance will cover you from lawsuits caused by poor communication, changing project requirements, and budget overruns.

Variable income

Architects are more likely to operate as sole proprietors than professionals in other industries. As a sole proprietor, you’ll need to spend time pursuing new clients, which can strain your business’s finances when you’re between projects.

There is no insurance policy to protect you from cash-flow problems, but you can take steps to keep your business in good financial health. For example, you might save a percentage of each check in an emergency fund, charge clients on a monthly basis instead of by the project, or require an up-front deposit or payments by milestone.

While architects on tight budgets may be tempted to forgo professional liability insurance, their business will have much larger financial problems if they have to pay for the costs of a lawsuit out of pocket.

Other insurance policies for architects and designers

While professional liability insurance is a must for architecture and design businesses, it only protects you from lawsuits caused by work mistakes or negligence. Depending on other aspects of your business, you might consider purchasing some or all of the following policies:

• General liability insurance. A general liability insurance policy will protect you if a client suffers an injury at your office or you damage their property.
• Commercial property insurance. If your architecture business has invested a substantial amount of money in high-end computers for designing building plans or other equipment that is necessary for work, commercial property insurance will reimburse you if gear is stolen or damaged.
• Business owner’s insurance: Depending on your business’s situation, you may be able to save money by purchasing a business owner’s insurance policy, which bundles general liability and commercial property insurance.
• Commercial auto insurance. Your personal automobile insurance may not cover you if you have an accident while driving for work, so some architects might add commercial auto insurance or hired and non-owned auto insurance.
• Workers’ compensation insurance. Most states require businesses with even one employee to carry workers’ comp insurance, which covers workers who are injured or become ill on the job.
• Cyber insurance. If you store confidential building plans or sensitive client data on your computers, you could be sued in the case of a data breach, which would be covered by your cyber insurance policy.