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Increase in Mandatory Professional Liability Limits for Architects – Additional Insight

Joint Communication from Pro-Demnity and OAA

Members will have seen in recent editions of OAA News, information regarding the increase in Mandatory Professional Liability limits effective January 1, 2016.  Click here for the previous article.

In response to some questions raised since January 1, Pro-Demnity and the OAA have jointly responded with some additional information/insight to ensure understanding and transparency of the recent changes. 

The decision to revise the mandatory limits and introduce a sliding scale approach was a collaborative decision between the Board of Directors of Pro-Demnity Insurance Company and the Council of the Ontario Association of Architects.  The scale of fees relating to the revised minimum limits was based on a review of the claim limits purchased by the profession to determine thresholds which resulted in the majority of Ontario architects maintaining their existing insurance coverage limits.  Approximately 100 Certificate of Practices have been affected by this change and are now required to purchase higher limits through Pro-Demnity Insurance Company.  Many of these affected practices already purchase excess insurance providing higher limits through Pro-Demnity or through another excess insurer. They will therefore only be affected to the extent of the difference between the higher premiums for the mandatory insurance which covers the highest risk portion of coverage and the lower premiums reflecting the lower risk for the excess coverage provider.  A small number of practices will now be required to increase their overall coverage to the new mandatory minimums in order to better protect the public interest. 

Developing a sliding scale model preserved the existing minimum coverages for smaller practices which make up over 85% of OAA’s Certificates of Practices.
The primary mandate of the OAA is to protect the public interest through the regulation of architectural practice throughout the Province of Ontario. With the amendment of the Architects Act in 1984, it was a requirement of the provincial government that architects were insured against professional liability claims.  Insurance premiums were so high, practices were not renewing or were reducing their professional liability insurance coverage so the OAA and the Law Society of Upper Canada were given the option to create captive insurance programs for their members/practices.

In order to ensure that the profession determined who may practise architecture, the Indemnity Plan was established to guarantee that upon approval of a Certificate of Practice by the OAA Registrar, professional liability insurance would be automatically provided to the architectural practice for the mandatory limits stated in the regulations to the Architects Act.  The Indemnity Plan was replaced by Pro-Demnity Insurance Company in 2002, a wholly owned subsidiary of the OAA, and is required to continue to guarantee professional liability insurance to architects.

As reported, the need to increase in the minimum mandatory limits effective January 1, 2016 arose from the following:

  • A desire to preserve appropriate levels of protection of the public interest.
  • A recognition of the change in the value of the dollar since 1984.  Specifically that the value of the dollar has decreased since 1984 making the $250,000 mandatory minimum limit from 1984 equivalent to approximately $100,000 today.
  • A recognition that the cost of projects and property values have increased considerably since 1984 and that $250,000 in coverage is often insufficient.
  • The corresponding growth in litigation against architects and the higher amounts claimed.
  • A need to bring the mandatory limits in line with other similar professions; i.e. lawyers have a minimum $1,000,000;  Chartered Professional Accountants a minimum $1,000,000, and the Fonds du Assurances, the Quebec architects’ captive insurance company also require a minimum $1,000,000.

Based on a formal report from the Board of Directors of Pro-Demnity, which outlined the limits purchased by architects according to their total gross fees, OAA Council approved the amendment to Regulation 27 under the Architects Act on November 14, 2014 to increase the mandatory limits.  Once that decision was made the legislative drafting process began through the Ministry of the Attorney General and on November 5, 2015 OAA Council accepted the amended regulation.  The final step of the process was completed in early December when the regulation was approved by Cabinet.  The regulation had been written such that it would come into effect on January 1, 2016.  The Attorney General requires that the amendment process be kept confidential until completed therefore it was not possible to provide regular updates on this file to the membership.

To reduce administrative issues and inconvenience to holders currently purchasing excess insurance, the transition to the mandatory program was extended from January 1, 2016 to the expiration date of these insurance policies during 2016.