Enhance Your Risk Management: Importance of Project Selection

MARch’S MONTHLY RISK MANAGEMENT TIP

Enhance Your Risk Management: Importance of Project Selection

Selecting the right clients and projects is not just a matter of business preference—it's a critical component of effective risk management. Ignoring key factors in project selection can significantly increase your exposure to potential claims. As professionals in the design industry, it's imperative to carefully consider various aspects before committing to a project.

Key Factors to Consider Include:

• Quality of the client: Assess the client's reputation, experience, communication style, financial stability and past experiences to gauge compatibility.

• Type of project: Consider the complexity, scale, and potential risks associated with the project type.

• Project funding: Ensure that the project's budget aligns with your firm's expectations for quality and profitability.

• Scope and fees: Evaluate the scope of work against proposed fees to avoid underestimating resources or overcommitting.

• Firm's capabilities: Be realistic about your firm's capacity and expertise to deliver on project requirements effectively.

• Fairness of the contract: Review contract terms to ensure equitable distribution of risks and responsibilities.

Mitigating Risks Through Project Evaluation:

Project selection isn't always a straightforward decision. Many projects present multiple secondary risk factors that, when combined, can pose significant challenges. By utilizing tools like a New Project Evaluation form, you can systematically identify and assess potential risks associated with each project.

Making Informed Decisions: Once potential risks are identified, you have two options:

a) Determine whether or not the job is worth taking to begin with.

b) If you decide to proceed, develop strategies to manage and mitigate risks effectively. This may involve transferring risks through insurance or contractual provisions, educating clients on comprehensive services, and crafting precise contracts that protect both parties' interests.

Take Action Today: If you're interested in accessing our New Project Evaluation form, email kpotter@cavignac.com, and we'll provide you with our checklist.

GET IN TOUCH!

Ready to elevate your risk management strategy? Contact us today to discover how Cavignac can tailor a comprehensive insurance and risk management solution for your design firm.

At Cavignac, our focused expertise gives our design professional clients a critical advantage. If there's anything we can do to assist you, don't hesitate to reach out. Visit www.cavignac.com or call us at 619-744-0585.

Why you need to understand the prevailing party provision in your contracts

February’s Monthly Risk Management Tip

Why you need to understand the prevailing party provision in your contracts  

A prevailing party provision is a clause often included in contracts that requires the losing party of a lawsuit or claim to pay the legal expenses incurred by the prevailing party.  In the absence of this provision, each party typically covers their own legal costs.  Supporters of this provision believe the clause will make each party think twice before bringing a frivolous claim against the other. It is especially appealing to firms that need to bring a suit against their client for non-payment of fees.  If a mutual prevailing party provision is in the contract and the firm sues for fees and wins, the court would award reimbursement of their legal costs in addition to the unpaid professional fees.  If the clause was not in the contract, the firm would be responsible for their own legal costs.

On the opposing side, there are many legal and insurance professionals that feel the potential exposure of the provision outweighs any benefits. Most professional liability policies cover a firm’s legal liability arising out of their negligence. The policies specifically exclude liability assumed under contract that is not a direct result of their negligence.  Depending on how the prevailing party provision is written, the clause may be uninsurable.  For example, if a court finds you even partially responsible for negligence as charged and determines that the other party has “prevailed,” you could end up paying the other party’s legal fees in addition to the damages you caused.  Those legal fees might be excluded under the professional liability policy and may need to be paid for out of pocket.

There are a few alternative provisions that potentially reduce frivolous claims that might be considered in lieu of the prevailing party clause.  The first is a Certificate of Merit provision.  This requires the plaintiff party to obtain a written certificate from a qualified professional practicing in the same discipline as the defendant. Note that this is different from the flimsy Certificate of Merit requirement in many states including California. The other option is an Alternative Dispute Resolution (ADR) provision that requires both parties to submit to mediation prior to filing a claim against one another.

It is ultimately a business decision on whether or not you feel comfortable with the potential risks of the prevailing party provision.  At a minimum, you should have your insurance broker review the contract clause from an insurability standpoint and have your attorney make certain the language is written as favorably as possible.

GET IN TOUCH!

Ready to elevate your risk management strategy? Contact us today to discover how Cavignac can tailor a comprehensive insurance and risk management solution for your design firm.

At Cavignac, our focused expertise gives our design professional clients a critical advantage. If there's anything we can do to assist you, don't hesitate to reach out. Visit www.cavignac.com or call us at 619-744-0585.

State of the Insurance Market: Navigating the Evolving Landscape of Commercial Insurance

JANUARY’S MONTHLY RISK MANAGING TIP

STATE OF THE INSURANCE MARKET:

Navigating the Evolving Landscape of Commercial Insurance

As we navigate the dynamic landscape of the commercial insurance sector, it's crucial to stay informed about the shifts and challenges that impact insurance buyers.

Over the last five years, the commercial insurance industry has faced challenging conditions, creating a hard marketplace for insurance buyers. Various factors, including increased claim frequency and severity, social inflation issues, evolving cyberthreats, and worsening natural disasters, have prompted insurance carriers to reassess their positions. Consequently, the market has experienced reduced capacity, stringent underwriting standards, and rising premiums across multiple lines of coverage.

Understanding the cyclical nature of the commercial insurance market is key to making informed decisions. The market fluctuates between hard and soft markets, each influencing the availability, terms, and price of commercial insurance. In a soft market, characterized as a buyer's market, premiums stabilize or decrease, coverage terms broaden, and competition among insurance companies increases. Conversely, a hard market, known as a seller's market, results in increased premium costs, stricter underwriting criteria, reduced capacity, and less competition for new business.

Looking ahead to 2024, our Market Outlook Forecast Trends provide valuable insights based on industry reports and surveys. While these forecasts are subject to change, they offer a general overview of expected rating trends in various lines of insurance:

• Commercial property CAT-free: +5% to +15%

• Commercial property CAT-exposed: +15% to +25%

• General liability: +1% to +10%

• Commercial auto: +5% to +30%

• Workers’ compensation: -5% to +2%

• Cyber: 0% to +15%

• Directors & Officers private and nonprofit companies: 0% to +5%, Public companies: -10% to +5%

• Employment practices liability: 0% to +10%

In this volatile insurance marketplace, staying ahead of the curve is essential.  Getting early indications from your current insurance company underwriters can help avoid surprises and allow you time to tailor your insurance program as needed.  Partnering with a proactive industry-specialist broker is key to navigating these market challenges effectively.   

At Cavignac, our unwavering commitment is to elevate the design professional industry by delivering unparalleled value. We strive to empower firms, enabling them to navigate risks with precision and face the future with unwavering confidence. If there's anything we can do to assist you, don't hesitate to reach out. Visit www.cavignac.com or call us at 619-744-0585.