REPORT TO: Council FOR: Special Meeting of Council. Professional Liability Insurance Accompanying Letters of Assurance

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1 DISTRICT OF SQUAMISH REPORT TO: Council FOR: Special Meeting of Council PRESENTED: May 13, 2008 FILE: COMDEV SUBJECT: Professional Liability Insurance Accompanying Letters of Assurance Recommendation: THAT Council direct staff to not apply the requirement described in paragraph 19.3 of the District of Squamish Building Bylaw No. 1822, 2004 for proof of at least $1,000,000 professional liability insurance coverage, to the submission of Letters of Assurance on standard building projects; AND FURTHER THAT the bylaw be amended at the next opportunity to effect this change. CAO Recommendation: THAT the report from Community Development be approved. K. Anema, CAO 1. Purpose: This report responds to an April 10, 2008 letter from Geotek Designs regarding the Building Bylaw requirement that $1,000,000 of professional liability insurance coverage accompany BC Building Code Schedules ( Letters of Assurance ). 2. Time Critical: The issuance of the building permit for a residence at Dryden Road is being withheld pending resolution of this issue. 3. Background: The Geotek letter describes a hardship case. Mr. Al Knutsen, who is a geotechnical engineer and the sole proprietor, states that he is unable to obtain the minimum professional liability insurance coverage stipulated by the bylaw ($1,000,000). He also contends that the District of Squamish stands alone in this requirement. 4. Project Information: On the whole this is an issue that speaks to exposure to risk and customer service. Staff s review included the following findings: L:\WPDocs\COUNCIL\Form.wpd Page 1

2 1. APEGBC The Association does not require that members carry Professional Liability Insurance nor does it hold a position on what is a reasonable amount of insurance for members to carry. The Association does provide members with an optional $100,000 secondary liability coverage for an annual fee of $ Insurance Brokers and Providers Park Insurance, a BC Brokerage that the APEGBC identified as being one of three large firms handling professional liability had the following comments. First they indicated that they were not aware of any industry policy that would preclude sole proprietors from obtaining $1,000,000 in professional liability coverage. The Insurer's decision as to whether this level of coverage would be extended is based on the applicant's history, fee volume and practice discipline. It was noted that geotechnical engineering was one of the higher risk practice areas and that if the applicant s revenue stream was modest this level of coverage might not be accepted. They went on to suggest that affordability might also be an issue for a sole proprietor although they could understand why the municipality might want this level of coverage. The Encon Group, the company that holds Mr. Knutsen s insurance policy, indicated that they too have no prohibition in policy that would preclude sole proprietors from obtaining $1,000,000 professional liability insurance. They were staightforward enough to say that they try to limit their own exposure to geotechnical engineering claims indicating that in the engineering field it was behind only structural engineering in terms of exposure to risk. 3. MIA Staff consulted Keith Gibson at the Municipal Insurance Association. Mr. Gibson is of the opinion that the level of professional liability coverage for professionals providing letters of assurance does not affect a municipalities exposure to claims providing the municipal bylaw is clear in stating that the municipality relies on the registered professionals in making attendant decisions on permitting and occupancy. In support he offers Parsons v City of Richmond as the applicable case law. The two salient points are that the municipality relies on the letters of assurance in issuing the permit and that the owner is so notified. These are covered in paragraphs 13.1, 13.2 and 13.3 of our bylaw. The bylaw excerpts follow: 13.1 The letters of assurance in the form of Schedules B-1 and B-2 referred to in section 2.6 of Part 2 of the Building Code and provided pursuant to sections , , and 19.1 of this bylaw are relied upon by the District and its building officials as certification that the design and plans to which the letters of assurance relate comply with the Building Code and other applicable enactments relating to safety A building permit issued for the construction of a complex building or for a standard building for which a building official requires professional design pursuant to section and letters of assurance pursuant section of this bylaw shall include a notice to the owner that the building permit is issued in reliance upon the certification of the registered professionals that the design and plans submitted in support of the L:\WPDocs\COUNCIL\Form.wpd Page 2

3 application for the building permit comply with the Building Code and other applicable enactments relating to safety When a building permit for a complex building is issued in accordance with section 13.2 of this bylaw, because the building official relies completely on the letters of assurance provided by the registered professionals for issuance of the permit and certification of the work, the permit fee shall be reduced as outlined in Schedule A to this bylaw. 4. Policy of Other Municipalities Staff asked a number of Lower Mainland and Corridor municipalities what their policy was regarding professional liability insurance. Municipality Required Comment District of N. Van Y Amount not Specifed Surrey Y $1,000,000 on CP projects only Whistler Y Amount not Specifed Coquitlam Y Amount not Specifed Nanaimo N Not Required Abbotdford Y Amount not Specifed Pemberton Y Amount not Specifed Kelowna Y Amount not Specifed Burnaby N Not Required 5. Legal Implications Staff asked our Solicitor two questions on the subject: 1. Does the District have a fiduciary responsibility to the community to ensure that professionals providing letters of assurance carry sufficient insurance? No, the decision is one of risk management and a policy decision weighing risk factors against cost and service factors, as you have analyzed. The local government does not however owe a legal duty in our view to require such insurance. 2. Can the provision of the bylaw be varied by a resolution of Council? Technically the building bylaw cannot be "varied". However, Council can pass a policy resolution stipulating that the provision will not be enforced pending proposed repeal. 5. Department Comments: Based on Staff s review the District's exposure to risk would not be significantly affected by reducing or eliminating the $1,000,000 requirement for professional liability insurance. However, Staff believe that it is prudent to continue to require this level of insurance on L:\WPDocs\COUNCIL\Form.wpd Page 3

4 Complex projects where the municipality relies entirely on the letters of assurance in issuing building permits and allowing occupancies. From a customer service perspective the interests of both the building community, community at large and professional community should be considered. The $1,000,000 requirement on standard buildings may limit a builder/ owners access to services which must be procured in order to gain municipal approvals. It may also impose a hardship on some sole proprietors who do not have the fee volume to either garner or afford that level of coverage. 6. Policy Implication Staff would follow the Council resolution when accepting letters of assurance for standard building projects. Only proof of professional liability insurance coverage would be required. The value would not be specified. The requirements for complex building projects would remain unchanged. 7. Alternatives to Staff Recommendation: Staff Recommendation: THAT Council direct staff to not apply the requirement described in paragraph 19.3 of the District of Squamish Building Bylaw No. 1822, 2004 for proof of at least $1,000,000 professional liability insurance coverage, to the submission of Letters of Assurance on standard building projects; AND FURTHER THAT the bylaw be amended at the next opportunity to effect this change. Implications: This approach would balance customer service and risk management. Alternative 1 THAT Council not support the staff recommendation. Implications: This would likely preclude some sole proprietors from providing professional services on building projects. Mick Gottardi, P. Eng. Director of Community Development L:\WPDocs\COUNCIL\Form.wpd Page 4

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