NPPE Professional Liability 5 — Questions and Answers
Question 1: A professional is named in a lawsuit that is ultimately dismissed. Who typically bears the legal defense costs incurred during the litigation?
- The client who filed the suit
- The professional, unless the policy or contract provides otherwise (Correct answer)
- The court system
- The professional's licensing board
Correct answer: The professional, unless the policy or contract provides otherwise
Defense costs are generally the professional's responsibility unless a professional liability policy with defense coverage or a contract indemnity clause shifts those costs.
Question 2: Which scenario best illustrates a 'claims-made' professional liability policy trigger?
- The negligent act occurred while the policy was in force, whenever the claim is filed
- The claim is filed during the policy period, regardless of when the act occurred (Correct answer)
- The policy covers acts occurring up to ten years before purchase
- Coverage applies only after the project is closed out
Correct answer: The claim is filed during the policy period, regardless of when the act occurred
A claims-made policy is triggered by when the claim is reported to the insurer, not when the underlying act occurred.
Question 3: An engineering firm sub-contracts structural analysis to a specialist who makes an error. The client sues the prime engineering firm. The prime firm is most likely:
- Immune because the sub-consultant caused the error
- Liable to the client since it is responsible for the overall project deliverable (Correct answer)
- Liable only if it knew the sub-consultant was unqualified
- Protected by the sub-consultant's professional license
Correct answer: Liable to the client since it is responsible for the overall project deliverable
The prime firm retains responsibility to the client for the entire scope of services, including work delegated to sub-consultants.
Question 4: A professional's certificate of insurance (COI) is best described as:
- A guarantee that the insurer will pay all claims
- A summary document confirming active insurance coverage at a point in time (Correct answer)
- A binding endorsement adding new parties to the policy
- A legal assignment of the policy to the certificate holder
Correct answer: A summary document confirming active insurance coverage at a point in time
A COI is an informational summary confirming coverage exists as of the issue date; it does not alter policy terms or create obligations to the certificate holder.
Question 5: Under most professional liability frameworks, the statute of limitations for a latent defect claim typically begins to run from:
- The date the contract was signed
- The date the defect is discovered or reasonably should have been discovered (Correct answer)
- The date the project was awarded
- The date the professional's license expires
Correct answer: The date the defect is discovered or reasonably should have been discovered
The discovery rule tolls the statute of limitations until the plaintiff discovers, or with reasonable diligence should discover, the defect.
Question 6: A professional includes a mutual waiver of consequential damages clause in a client agreement. This clause is best understood as:
- Protecting only the client from the professional's lost profits claims
- Protecting both parties from each other's indirect economic losses (Correct answer)
- Voiding the professional's obligation to carry insurance
- Replacing the standard of care with a strict liability standard
Correct answer: Protecting both parties from each other's indirect economic losses
A mutual waiver of consequential damages protects both parties symmetrically from claims for indirect losses such as lost revenue or business opportunities.
Question 7: Which professional behavior is most likely to mitigate liability exposure during project execution?
- Avoiding written communication to limit a paper trail
- Documenting all significant decisions, changes, and client instructions in writing (Correct answer)
- Delegating all decisions to the contractor to transfer risk
- Reducing scope reviews to save time and fees
Correct answer: Documenting all significant decisions, changes, and client instructions in writing
Thorough written documentation of decisions and changes creates a clear record that supports the professional's defense and demonstrates due care.
NPPE Professional Liability 5
A professional is named in a lawsuit that is ultimately dismissed.
Who typically bears the legal defense costs incurred during the litigation?