If your billings are less than $25K a year (or even less than $100K per year), another option to look at would be to have a strong limitation of liability clause in your contracts (you DO use contracts, don't you?). This would be a much cheaper way of managing your risk while your billings are low. I'm not trying to discourage you from getting professional liability insurance coverage (which I think is the professional thing to do for nearly every practitioner), and the premiums on a small policy (don't do anything less than $500,000) will not be huge on the limited amount of billings you have. But I would consider the limitation of liability clause as an initial risk management strategy. For the types and scale of projects I would assume you are doing within this billings range, I would bet that many, if not all, of those clients would give you a limitation of liability. That will not be the case, typically, when you start working on larger projects. You will need to consult with an attorney, however, to make sure you are using a limitation of liability clause that is legal and enforceable in your state.

*This is not legal advice, it's just my experience!*

I went for five years of small residential practice with no liability insurance. Just got a project with the city this year, which requires architects contracted with them to carry $1 mil/occurrence, $2mil/aggregate insurance or they won't sign a contract. So, I bit the bullet and bought it this year. General office liability is about $300 for the year, the E&O is about $2,000. We got it through my/our State Farm guy, who sold us house and car insurance; State Farm has just started offering E&O in their "Specialty Products" division.

So you can see that on $25k billings that's a big chunk of your operating costs.

Without this city job, we'd still be flying free, but that's based on the type of work we do. We have very personal relationships with homeowners - barely even any commercial work - and we have been more than willing to cover expenses for anything we felt was truly our mistake. We've never been (knock wood) sued by a client, we've never even had a whiff of potential legal action. So that $2,300 was, in my opinion and at my level of acceptable risk, an unnecessary expense until this city project came along.

It is smarter to CYA, as you said, but it hurts to write that check!

thanks to both of you - yes, I also feel that the insurance might be more than we need (both in terms of cost & in terms of need) - I already use a contract, with a limited liability clause.

right now, $2000 a year is way too much - for only $25k in billings, but of course, it'd seem small if I got sued...

LLC.

and i don't mean the clause...

I second LB - I only have E&O now because a client asked for it, and it is 2000K a year for the minimum policy. It is very unlikely you would be sued for small projects, lawyers just cost too much. Excellent communication throughout the project is your best bet, and steering the clients away from bad contractors.

Yep: this is the best insurance.

I disagree. you should cover you butt with insurance. your work typically has a statute of limitations of 10 years. While we have a limitation of liability limited to our net fee, it has never been put to the test. I happily shell out our 3 percent of billings each month for the piece of mind.

i'd hate you to loose your house 8 years from now for being stingy today.

Also go llc if you can.

Some states do not allow architects to form a LLC. Check with your state licensing board.

Keep in mind you can be sued by any owner of the building during the statuate of limitations period in your state. Even if your on good terms with your current client, a future property owner could still come after you and make a claim.

why LLC if you are still personally responsible? I can understand when you have employees, but what about when it's just you, the biz owner and ... no one else? still professionally liable, correct?

professionally liable = yes.
personally liable = get your home = no.

Does this apply just to LLC, or also LLP or PLLC (we have all 3 here...)

My accountant told me the LLC was better for tax reasons (actually he's trying to get us to reform as an S-corp but neither of us have the energy right now).

But in Indiana - and this varies by state - the LLC does not protect you, if you are a licensed professional, from facing a lawsuit as a person, not as a corporation. Your home or other personal property is likely not to be lost in the suit IF you're married and hold the home jointly (another one of those benefits of marriage that gay couples are currently denied, as well as single people, which totally sucks). Again, these issues vary from state to state.

Thanks LB - that's what I understood as well. I suspect that I'll wait on all of it until the jobs get big enough to warrant spending money on the upgrades. (billings and risk are tiny now).