Short answer
A new architecture firm can create very different E&O insurance questions from a simple change to an existing firm’s name.
If the firm keeps the same legal entity and simply changes its name, the change may primarily require the insurance carrier to update its records. If the old company closes and the owner creates a new entity, the insurance considerations can be much broader.
A new entity can raise questions about prior acts, predecessor firm coverage, retroactive dates, existing contracts, ongoing projects, historical work, and tail coverage for the old company.
What is the difference between a name change and a new architecture firm?
The first question is whether the legal entity is actually changing.
For example, suppose ABC Architecture, LLC becomes ABC Design Studio, LLC. The firm keeps the same EIN, legal entity, and operations.
That may primarily be a name-change issue. The insurance carrier still needs to know about the change so it can determine how the existing policy should be documented.
Now consider a different situation. ABC Architecture, LLC stops operating, and the owner creates XYZ Studio, PLLC with a new EIN.
That is a new legal entity.
The insurance analysis can be different because the new company is not simply the same entity operating under a different name.
Why does the legal entity matter for E&O insurance?
Professional liability insurance is tied to the insured entities and people identified or defined by the policy.
When an architecture firm changes its legal entity, the carrier needs to understand what happened to the old company and what the new company is taking on.
Questions can include:
- Who owns the old entity?
- Who owns the new entity?
- When did each entity begin operating?
- Will the old entity remain active?
- What happens to existing contracts?
- Are ongoing projects moving to the new entity?
- Is the new entity assuming liabilities from the old company?
- What happens to completed projects?
- What retroactive date will apply to the new policy?
These questions help the carrier determine how the firm’s professional liability exposure should be handled.
What happens to prior acts when you form a new entity?
A new professional liability policy does not necessarily mean that all professional services performed by the old company automatically become covered under the new company’s policy.
The carrier needs to understand the history of the firm and the relationship between the old and new entities.
For example, an architect may have performed design services through ABC Architecture, LLC for several years before forming XYZ Studio, PLLC. The new company may continue working on some of those projects.
That creates questions about which entity performed the original services, whether the new policy provides any applicable prior-acts coverage, and how the old entity’s professional liability exposure will be handled.
The applicable retroactive date and policy definitions need to be reviewed rather than assuming the new policy picks up everything from the old company.
What happens to existing and ongoing projects?
Existing contracts should be reviewed before moving professional services from one entity to another.
A client may have signed a contract with the old company. Simply transferring the work to a new entity does not necessarily change the contract or the insurance requirements.
The same issue can arise with ongoing projects. The firm should determine which entity is performing the services, which entity is responsible under the contract, and whether the applicable professional liability policy covers those services.
This is especially important when the client contract requires a specific legal entity or particular insurance terms.
What happens to the old firm’s historical projects?
Historical projects can continue to create professional liability exposure after a firm changes its name or creates a new entity.
A project completed under the old company does not become a project of the new company simply because the same architect now operates through a different entity.
The old entity’s insurance history and coverage should therefore be reviewed before the transition.
Depending on the circumstances, this may involve maintaining coverage for the old entity, arranging an Extended Reporting Period, or determining whether another policy provides applicable prior-acts coverage.
When is tail coverage relevant?
Tail coverage can become relevant when the old entity stops operating and its professional liability policy is terminated.
An Extended Reporting Period generally gives the insured additional time to report qualifying claims arising from professional services performed before the policy ended. It generally does not provide coverage for new professional services.
Whether an ERP is appropriate depends on the firm’s circumstances, policy, historical work, and other available coverage.
The old entity’s professional liability exposure should be addressed before simply canceling its policy.
What should you tell your broker before forming the new firm?
Give your broker the complete picture before the transition.
At a minimum, discuss:
- When the old company began
- When the new company will begin
- Ownership of both entities
- Whether the old entity will remain active
- What happens to existing contracts
- Whether projects are being transferred
- Whether the new firm assumes liabilities from the old company
- The current retroactive date
- Claims history
- Historical professional services
- Whether tail coverage may be needed for the old entity
The carrier may need additional information depending on the structure and circumstances of the transition.
Example: A name change versus a new company
Consider two architecture firms making what looks like the same business change.
Firm A changes its legal name from ABC Architecture, LLC to ABC Design Studio, LLC. The EIN, ownership, legal entity, and operations remain the same.
Firm B closes ABC Architecture, LLC and forms XYZ Studio, PLLC with a new EIN. The owner moves existing work to the new company.
Both firms may describe what happened as a “name change.”
From an E&O insurance perspective, the situations are different.
Firm A may primarily need to document a change to the existing insured entity’s name.
Firm B has an old entity and a new entity. Its insurance review needs to address the old company’s professional liability exposure, the new company’s coverage, existing contracts, prior acts, and potentially tail coverage.
The specific insurance treatment depends on the policies and circumstances.
Don’t treat an entity change like changing a website
A branding change can be simple. A change in legal entity can have insurance consequences that go beyond the firm’s name.
Before making the transition, involve your broker and explain exactly what is changing. The carrier needs to know whether the firm is keeping the same legal entity or creating a new one.
That distinction can affect how prior professional services, ongoing projects, contracts, and historical claims are handled.
Related Questions
Does changing an architecture firm’s name affect E&O insurance?
It can. If the legal entity remains the same, the change may primarily require the carrier to update its records. A new legal entity can create additional coverage questions.
Does a new architecture firm automatically get coverage for the old firm’s projects?
Not necessarily. The new policy’s terms, prior-acts coverage, retroactive date, and relationship between the two entities need to be reviewed.
What happens to E&O insurance when an architecture firm closes?
The firm should review how its professional liability exposure from prior services will be handled before terminating the policy. An Extended Reporting Period may be one option.
Can an architecture firm transfer existing projects to a new company?
That depends on the contracts, the entities involved, and the arrangements between the old and new companies. The insurance implications should be reviewed before transferring the work.
Does a new EIN mean I need a new professional liability policy?
A new EIN can indicate that a different legal entity is involved, but the appropriate insurance arrangement depends on the entities, ownership, operations, and policy terms.
Should I tell my insurance broker before changing my firm’s legal entity?
Yes. Discuss the proposed transition before it occurs so the broker and carrier can review the existing policy, the new entity, prior acts, contracts, and any coverage needed for the old entity.