With many residential builders now involved in sourcing designs, and design and construct contracts becoming increasingly common in the commercial sector, it’s important to understand how this can expose your business to potential losses should you not have the right insurance cover in place.
Historically, Professional Indemnity (PI) insurance was only considered necessary by engineers, architects, or designers and the like. When directing clients to particular designers, or entering into design and construct contracts, you are likely to legally assume a degree of liability arising out of injury or loss arising out of professional services, even if you’ve outsourced this work to an external company.
What is Professional Indemnity insurance?
Professional Indemnity Insurance is designed for professionals who provide advice or services to their customers. It protects your business against legal costs and claims for damages to third parties which may arise out of an act, error, omission or breach of professional duty in the course of your business.
Examples of Professional Indemnity claims:
• A negligently designed slab cracks and needs to be repaired/rectified.
• A balcony collapses due to faulty design.
• A builder installs tiles in a wet area that are not slip-rated to the correct level, resulting in a slip & fall injury which is directed back to the builder.
• A building is constructed per plans but does not comply with building codes/local laws resulting in rectification works in order to comply.
Why you need Professional Indemnity insurance.
Construction industry professionals such as contractors and builders who provide design, product specification or other professional services in addition to, or as part of, their construction activities for clients (for example, when entering into design and construct contracts) assume the additional responsibilities and liabilities of a design professional.
Whether or not you provide these professional services in-house or engage an external consultant, you assume liability to your clients or other parties for claims arising out of injury or loss incurred as a result of a breach of professional duty in the provision of these professional services.
What are you being covered for?
Key exposures include design failure, inadequate/incorrect advice, design, or product specification, inappropriate/incorrect certification and poor work documentation.
Who can claim against you?
‘PI’ claims can be made against you by any third party including, but not limited to, clients, regulatory authorities, professional bodies and associations, future property owners and body corporations.
Do I need Professional Indemnity insurance if I outsource all of my designs?
Whether you direct clients to a particular architect or draftsperson, or your clients provide you with full plans without your input, builders are typically the first port of call for design/product specification losses. It costs time and money to defend against PI claims, and while you may ultimately be found only 10 to -20 per cent responsible for the loss, the legal defense costs and proportionate liability judgment can result in losses in excess of $100,000.
You may already have a Professional Indemnity policy, but do you have the right cover?
If your business is involved in construction (not exclusively design) you should be insured through a Design and Construct (D and C) PI policy. Without being insured through a D and C policy, your PI policy may not cover you for jobs that you’ve constructed, even if your advice or product specification on the build was the direct cause of loss.
D and C professional indemnity policies encompass a broad definition of the various professional services involved in designing and building. A non- D and C professional indemnity policy will require you to specifically list the professional services to be covered, with anything not specifically listed thereby uninsured.