Another COVID IMPACT: Engineer Error and Environmental Pollution Claims continue to rise due to Social Inflation, Aging Infrastructure, Insurance Industry change

Chalk up yet another long-term COVID impact upon our businesses and lives that will affect Engineers and Environmental Consultants through increases in Errors and Omissions insurance costs! Social inflation, aging infrastructure, and insurance industry risk aversion are resulting in higher premiums, additional limitations of coverage, and a pull-back in umbrella and excess casualty capacity.

Social inflation, defined by Philadelphia Insurance Companies, as “a term used by insurers to describe rising costs of insurance claims resulting from things such as increased litigation, broader definitions of liability, more plaintiff friendly legal decisions and larger compensatory jury awards.” Post-Covid, early indicators show the trend for social inflation increasing and accelerating.  Environmental pollution claims and construction time and budget claims are categories of litigation that have seen outsized jury awards that are not based on legal precedence or known practices of liability attribution.  The net result for Engineers and Environmental Consultants is higher premiums, higher deductibles, and a pairing away of coverage forms with riders and exclusions.

Aging infrastructure, though a problem prior to the pandemic, has only been exacerbated by the hobbling of governments from municipal to federal level during the lockdowns and quarantines.  For long periods of 2020, infrastructure and road improvement work was on hold as governmental entities faced the changed realty of a work-from-home or limited in-person workforce.  For Engineers, this can result in being drawn into time and budget lawsuits and allegations of professional misconduct for not delivering as per stated contract deadlines.  For many years, engineers spent little time worried about the “Force Majeure” or Acts of God provisions in contracts.  Now, many are scrambling to include language specific to pandemics, virus outbreaks and micro-organism.

For Environmental Consultants, the connection from aging infrastructure to pollution claims is more direct.  One more year of deferred maintenance to underground storage tanks, retention basins, or landfill liners will result in increased frequency and severity of insurance claims.  Add to that reduced workforces or furloughed work crews, and the opportunity for error increases.

But of course, the insurance industry will respond with additional capacity and more carrier options as the demand increases?  In a word, no.  The insurance industry itself has been hobbled by work-from-home transition with underwriters less responsive as phone systems work sporadically and VPN networks glitch and freeze.  This combined with a general reduction in excess casualty capacity, that is carriers offering less commercial umbrella limit or reducing the limits available to their current clients, has created the perfect storm for Engineers and Environmental Consultants.  Premiums increase and clients are offered less umbrella coverage on renewal over their existing coverage.

So, business owners are forced to practice with less coverage for higher prices and face the potential for socially inflated losses.  A terrible trend for 2021 that makes many in the insurance industry long for the better days of 2020.  Engineers and Environmental Consultants need to pay increased attention to their insurance programs and search for alternatives early and aggressively.