Five A&E E&O Coverage Gaps Your Architect and Engineer Clients Don’t Know They Have

Key Takeaways

  • Claim severity in the A&E professional liability market has risen for the third consecutive year, with 60% of carriers reporting higher severity in 2025 and none reporting improvement.
  • Standard E&O policies written on generic professional liability forms often leave architects and engineers exposed at the very moment they need coverage most.
  • Retail agents who can identify and close these gaps before a claim occurs become indispensable to their A&E clients.

Architects and engineers don’t think about their E&O coverage until something goes wrong. By then, the gaps are already expensive.

The professional liability market for design professionals is entering 2026 under pressure. According to the Ames & Gough 2026 A/E Professional Liability Survey of 15 leading carriers, 60% reported higher claim severity in 2025, up from 53% the year before and 41% in 2023. Not a single insurer reported a decline. Rising defense costs are the primary culprit: 93% of carriers cited more aggressive claim prosecution, expanded use of eDiscovery, longer resolution timelines, and escalating panel counsel fees as material factors behind the trend.

Meanwhile, 82% of surveyed carriers reported paying multimillion-dollar claims in 2025. When carriers ranked the disciplines with the highest claim severity, structural engineering topped the list at 80%, followed by civil engineering at 73% and architecture at 60%.

For retail agents placing A&E E&O business, the takeaway is clear: the standard approach to coverage isn’t keeping pace with how design firms actually operate, what their contracts require, or how plaintiff attorneys are prosecuting claims. Here are five coverage gaps that surface repeatedly in claims data, and that present a genuine opportunity for agents who know where to look.

1. The Condominium Exclusion Nobody Reads

This is one of the most common and costly gaps in A&E E&O coverage. Many policies written for architects who handle commercial and residential projects are placed on a design professional form that specifically excludes services for condominiums. The exclusion often appears as standard policy language rather than a separate endorsement, which means it’s easy to miss during a quick policy review.

The problem is obvious: an architect who designs a mixed-use building with a condominium component may discover that the condo-related work falls outside coverage entirely. In practice, condominium projects consistently rank among the highest-risk project types that carriers flag for elevated underwriting scrutiny and targeted rate increases.

What agents should do: Ask every A&E client whether any of their current or anticipated projects involve condominium design, condo conversion, or condo condition assessments. If the answer is yes, confirm that the policy either affirmatively covers condominium work or can be endorsed to do so. Don’t assume the base form handles it.

2. The Subconsultant Coverage Gap

Design projects rarely involve a single firm working in isolation. An architect typically retains structural engineers, geotechnical consultants, MEP engineers, and other subconsultants. When something goes wrong on a project, the prime consultant often faces claims tied to the subconsultant’s work, regardless of where the fault actually lies.

The gap appears when the prime architect or engineer lacks a written contract with its subconsultants, or when the subconsultant carries inadequate E&O limits of its own. Without proper contractual indemnification provisions, the prime firm can be left holding liability for errors it didn’t make, with no mechanism to engage the subconsultant in dispute resolution.

Real-world claims data bears this out. In one widely cited scenario, an architect who retained a structural engineer and a geotechnical firm on proposals alone, with no formal contracts, was unable to bring those subconsultants into the dispute process when foundation problems surfaced. The resulting payout exceeded $700,000.

What agents should do: Review the client’s subconsultant management practices. Do they require written agreements with indemnification provisions? Do they verify that subconsultants carry adequate E&O limits? Do their subconsultant contracts align with the dispute resolution language in the prime agreement? These questions don’t just reduce claim risk; they make the submission more attractive to underwriters.

3. Claims-Made Form Misunderstandings and Tail Coverage Gaps

Most A&E E&O policies are written on a claims-made basis, not occurrence. This is standard for the class, but it creates a persistent area of confusion among A&E clients and, occasionally, among agents more accustomed to occurrence-form placements in other lines.

The critical issue is what happens when coverage ends. If an architect retires, sells the firm, or simply switches carriers without maintaining continuity of the retroactive date, claims arising from past work can fall into a coverage void. Extended Reporting Period (ERP) endorsements, commonly called “tail” coverage, exist to address this, but they are expensive. Industry sources report that ERPs typically range from 75% to 225% of the expiring premium, with the reporting window usually lasting three to five years after the policy ends.

For growing firms, there’s a subtler problem. A firm that started as a two-person shop with $1 million/$2 million limits may now be handling projects worth several million dollars. If the retroactive date hasn’t been carefully maintained through carrier changes, there can be gaps reaching back to earlier project work that is no longer covered.

What agents should do: At every renewal, confirm the retroactive date is continuous and appropriate. For clients approaching retirement or ownership transitions, start the tail coverage conversation early, well before the transition date. For firms that have changed carriers, verify that the prior acts coverage has not been inadvertently narrowed or lost.

4. Design-Build Exposure Without Adequate Coverage

Design-build project delivery continues to expand across both public infrastructure and private commercial construction. It is faster, it is popular with owners, and it is consistently flagged by A&E liability carriers as a higher-risk arrangement.

The issue for design professionals is that design-build blurs the traditional boundary between design and construction. When an architect or engineer works within a design-build entity, they may be assuming contractual obligations that extend well beyond their standard professional services. Some of these obligations, such as performance guarantees, fixed-price commitments, or warranties of construction quality, may be uninsurable under a standard professional liability policy.

Several carriers surveyed for the 2026 NSPE/AIA/ACEC Professional Liability Carrier Survey specifically identified design-build and alternative project delivery as a leading factor behind rising claim severity on infrastructure projects. Project-specific professional liability (PSPL) coverage for large design-build projects is also becoming harder to obtain and more expensive, which can push additional risk back onto the firm’s annual practice policy.

What agents should do: When a client takes on design-build work, review the contractual obligations carefully. Look for language that could create uninsurable guarantees, such as promises to “ensure” construction quality or performance outcomes. Confirm whether the E&O policy covers design-build services, and whether project-specific limits or endorsements are appropriate for the scope of the engagement.

5. AI-Assisted Design: The Emerging Coverage Question

This is the gap that hasn’t fully materialized yet, but it’s moving fast. According to the Ames & Gough survey, 80% of A&E professional liability insurers now view AI adoption by design firms as a potential disruptor of the overall market. The concern isn’t theoretical.

Architects and engineers are increasingly using AI tools for generative design, BIM coordination, energy modeling, code compliance checking, and automated specification writing. The professional liability question is straightforward: if an AI-generated design recommendation contains an error that leads to a claim, who is liable? Under current legal doctrine, the deploying firm and the responsible professional bear the liability. Courts treat AI as a tool, not an autonomous legal actor.

But the insurance response is still catching up. As of January 2026, ISO introduced form CG 40 47, which excludes bodily injury, property damage, and personal injury arising from generative AI under commercial general liability policies. While this applies to the CGL coverage part rather than E&O directly, it signals the direction of travel across liability lines. Some carriers have already introduced absolute AI exclusions for D&O and E&O products. Others are requiring AI governance documentation, including timestamped review logs and audit trails, as a condition of affirmative coverage.

For A&E firms, the practical question is whether their professional liability policy explicitly addresses AI-assisted design work, or whether it relies on “silent” coverage that could evaporate at the next renewal.

What agents should do: Ask clients whether they are using AI tools in their design process. If so, determine whether the current policy affirmatively covers AI-assisted professional services or is silent on the topic. As carriers continue to clarify their positions, firms that can demonstrate documented AI governance practices, including human review protocols and audit trails, will be better positioned to secure favorable coverage terms.

The Agent’s Opportunity

The A&E professional liability market is not in crisis. Pricing remains competitive, capacity is broadly available, and most carriers continue to support the class. But the underlying claims environment is deteriorating in ways that standard policy placements don’t always address.

For retail agents, that’s the opportunity. The agents who dig into their clients’ project mix, contractual practices, subconsultant arrangements, and technology adoption are the ones who catch these gaps before a claim exposes them. And in a market where 73% of carriers plan rate increases entering 2026, with many targeting firms that present higher-risk profiles, demonstrating strong risk management practices at the submission stage can make a meaningful difference in both coverage terms and pricing.

The design professionals who take their E&O coverage seriously are looking for agents who do the same. These five gaps are a place to start.

Action Items for Retail Agents

  1. Audit condominium exposure at every A&E renewal. Confirm affirmative coverage or appropriate endorsements for condo-related work.
  2. Review subconsultant practices. Require clients to show written agreements, indemnification provisions, and proof of subconsultant E&O coverage.
  3. Verify retroactive date continuity at every renewal and carrier change. Start tail coverage planning well in advance of ownership transitions.
  4. Scrutinize design-build contracts for uninsurable obligations. Confirm that E&O coverage extends to design-build and alternative project delivery.
  5. Ask about AI tool usage and document governance practices. Position clients for affirmative coverage as carrier requirements evolve.

Sources

About PDI

PDI is an Indianapolis-based wholesale brokerage firm with a national network that includes thousands of insurance agents, brokers, architects, engineers and contractors in all 50 states. Since PDI’s beginning in 1980, we’ve handled a single line of coverage: errors & omissions (E&O) for design professionals. Contact Us today for a review of your design client’s insurance program.