Victor O Schinnerer & Company Inc. the increasing scope of government regulations such as building codes or standards, environmental laws, and regulations related to occupational safety; or from the constraints imposed by time and money in an era of high inflation and interest rates which result in demands for accelerated completion; or, finally, from the changing attitudes of the courts and society in regard to the accountability of professionals for the com sequences of their acts. The One way the insurance industry measures this professional liability to The other major parameter used to measure professional liability is the severity of claims. This quantifies the cost of claims. (Frequency quantifies the number of claims.) Starting at the same point used above measure claim frequency, 1960, the value of an average claim was $5,481. This amount is derived by dividing the total incurred loss for the claims by the total number of paid claims. This amount is in excess of the insureds' deductibles and reflects only the insurance company's claim experience in the first $250,000 layer of insurance. By 1978, the average claim had reached $43,659. When all of the 1985 claims have been reported and resolved, the actuaries tell us that that average will exceed $70,000. -3 VICTOR O Schinnerer & Company Inc an You already have heard from other witnesses that the cost of professional liability insurance truly is a burden to engineers and other design professionals. The cost of professional liability insurance to architect or engineer, in addition to their obligation to pay substantial deductibles, is somewhere in the range of 4% to more than 15% of gross billings. The cost of professional liability insurance, after personnel or salary costs, is the highest expense item for many engineers. It is important to understand how engineers' professional liability insurance policies are written to understand the impact on design professionals. These insurance policies are written on a "claims-made" basis i.e., the insurance must be in force when the claim is made, irrespective of when the professional services were performed. And, these policies contain substantial deductibles on a per claim basis, which apply to both indemnity payments made to a claimant and to the investigative and legal costs incurred in defending against the claim. In many cases, an engineer who is absolved of liability must pay thousands of dollars just to establish the successful defense. Under the insurance program for which we serve as the underwriting manager, the current minimum per claim deductible is $2,000. The most commonly carried deductibles are in the $5,000 to $10,000 range and higher. Rather obviously, any firm that has even a single claim is faced with a substantial financial exposure irrespective of insurance coverage. Professional Liability Insurance for design professionals is not now, nor practising in the United States is relatively small and those with the skill and experience to render hazardous waste abatement services is very small. Thus, the base across which the risks inherent in the proposed legislation can be spread is quite small, indeed. As has been amply demonstrated in previous testimony, the insurance industry in general currently is in a state of rapid and traumatic change. The continued availability of professional liability insurance for engineers performing hazardous waste abatement and related services is not at all certain, under the best of circumstances. In fact, one of our competitors recently introduced a new policy form containing a condition which excludes coverage for claims arising out of such services. In all of this, as well, the public has a vital interest. There can be little doubt that members of the public as well as professionals' clients are directly benefited by engineers having financial resources in the event of a professional liability claim. If a person is injured or damaged by a design professional's negligence, there can be no meaningful recovery in the absence of insurance or personal assets. If professional liability insurance is not available at any price or if a professional has chosen not to purchase professional liability insurance because of the expense, or has insufficient resources to pay the deductible, the injured parties, rather than the professional, will suffer the financial burden. Despite all of the adverse developments over the past 27 years, including changing standards of practice, constantly expanding judicial interpretations of duties owed, dramatic increases in claim frequency and severity, and vastly increased expectations on the part of design professionals' clients, the professional liability insurance program we manage has been continuously available on a nationwide basis since 1957. Even today, we are confident that the professional liability risks of engineers and architects can be managed successfully and that professional liability insurance availability can be maintained. However, what cannot be managed is the uncertainty of underwriting results Victor O Schinnerer & Company inc occasioned by liability that would be vastly expanded, virtually over- though it may be, we are confident in the that if design professionals' liability is to be determined under the theories of strict, joint and several liability, professional liability insurance will no longer be available to these professionals, at any price. In our opinion, equity demands that engineers who are called upon to help solve an existing problem, in this case hazardous waste abatement, a problem which they neither created nor contributed to in any way, should not be exposed to liability expanded beyond that of traditional negligence standards. Nor, for that matter should any response action contractor, whether rendering professional service or performing the actual abatement procedures, be subjected to expanded theories of liability. to It would be against the public interest to discourage engineers and other response action period in which and its We appreciate this opportunity to present our views. We would welcome the |