One of the challenges that face owners of architectural firms when general economic conditions require planning are associated with what proactive steps an owner can take when a temporary firm closure or merger to another firm is contemplated.
Offered below are several general recommendations an architectural firm can adopt to protect the owner’s assets when the business might have to close for economic reasons.
The first thing that could be done is to purchase an insurance policy that is not what is known as a “claims made” policy. You don’t want a “claims made” policy because these can be problematic when the “claim is presented” sometime AFTER the expiration date of the policy. You’re going to have to do some research and digging because non-claims made policies for designs professionals that offer coverage for “errors and/or omissions” are difficult to find.
One of the good things of even “claims made” policies is that they require the consent of the insured party when any offer to settle is made to the architect’s (insured party) legal counsel. This gives the architect an amount of control over their defense.
Second, make sure you’ve got a good records retention policy that couples both short- and long-term storage of important records. These records should include billing records and contracts. Hopefully these records will be able to show that the firm had a typically low involvement during the construction phase. In most cases this limited involvement helps to also limit the liability of the architectural firm and limit the scope of responsibility for construction activities.
This third suggestion may sound controversial, but many small engineering firms have adopted a policy of destroying records after no more than two years from the completion of construction. This is based upon the idea that the firm’s defense can be made easier if there is no problematic records for plaintiffs to review.
