CONSTRUCT & DESIGN
ABOUT CONSTRUCT & DESIGN PROFESSIONAL INDEMNITY
So what is a Professional Indemnity (“PI”) Insurance?
- Professional indemnity insurance aims to protect you and your Construction business from various claims made by clients and third parties (whether those claims are genuine or false). In particular, it helps protect you when someone seeks compensation if you’ve made mistakes or are found to have been negligent.
- Professional indemnity insurance is often also known as “PI”insurance. The “professionals” covered used to be quite narrowly defined, essentially traditional “professions” like accountants,attorneys and architects. Now, however, the scope extends more widely to anyone offering specialist advice or services.
Why do I need Professional Indemnity Insurance?
- As a Building Contractor you may also incur design exposures, even when you have no contractual responsibility for design, in the sense that you as a Contractor may have an input to the design, positioning, materials to be used or the process of how to build, or more likely, design changes as the construction progresses you as the builder collaborate with the professional and then problems are encountered on-site to the design, materials etc.
- As a Contractor you have a vast amount of practical on-site experience which professionals do not always enjoy. But contractors are not design professionals,so it is at this interface of practical experience with professional knowledge that things can go wrong and the professional blame occurs and the Contractor is left carrying the burden.
- Professional designers are not unknown to design something that cannot be built! And the contractor’s input might not achieve everything intended. If it goes wrong, everybody will get sucked into the claim.
This is a “Claims Made” Policy
Remedying design faults can be an expensive matter
- Very simply put, Claims Made means, that the claim for the Injury or Damage is made during the period of insurance.
- Damage:shall mean physical loss of or physical damage to tangible property
- Injury: shall mean death of or bodily injury, illness or disease of any person
- Period of Insurance: shall mean the commencement date shown in the Schedule and ending with the expiry date shown in the schedule and any other period for which The Insurer accepted the Contractors premium.
This policy covers the negligent and careless actions of the following, who are noted as professionals:
- Architects, Engineers, Project Managers, Construction Managers, Specialist Contractors, Landscaping, Security, Burglar Alarms, Electrical Installations, Plumbing, Cladding, Glazing, Specialist Finishes, Communications Technology, Lifts and Escalators, Fire Protection, Flooring, Form Work, Structural Steel Works, Turn Key interior Design, Road marking, Bituminous Surfacing , Scaffolding, Precast Concrete, Roofing, Painters, Refrigeration, Water and Sewerage, Solar Energy, Air Conditioning, Heating and Ventilation.
- Such other Specialist Consultants, Technicians or Inspectors as would be normally appointed on the advice of or under the direction or control of a Discipline referred to in i. above.
- A person holding a recognized University or Technical Qualification in the fields defined in i. above with at least 3 years relevant experience.
- or a site based technical representative having a minimum of 10 years relevant supervisory experience in the fields defined in i. above.
CONSTRUCT & DESIGN VS CONTRACTORS ALL RISK
Construct & Design Policy
Loss, shall mean:
Actual expenses including re-design and replacement that are reasonably and necessarily incurred in rectifying or repairing any defect in the contract works, including any consequential loss arising from defect and caused by the breach.
Contractors All Risk Policy
- Loss or damage due to faulty design
- Defective workmanship
- The cost of replacement or repair of defective material and/or workmanship,
- Consequential loss of any kind ordescription whatsoever includingpenalties, losses due to delay,lack of performance, loss of contract;
FREQUENTLY ASKED QUESTIONS
What risks do I face if I offer no professional services?
Hidden exposures – Frequently contractors who offer no design services at all are being asked to carry professional indemnity. A question they often ask is ‘what risks do I face if I offer no professional services.’ The answer is that there are some risks:
- Design alterations: any construction company involved in building anything will nearly always be asked to ‘tweak’ the plans a little in order to make them work. The concern here is that a small alteration here could have a larger knock-on effect, thus causing a real problem later in the job. A real liability can arise if plans are altered.
- Architects should double check designs to ensure they work. Failure to do so can lead to a claim. Example – building a staircase in the wrong place, the Contractor was aware that this was not going to work and yet continued to build the staircase without notifying the Professional.
- Temporary works: scaffolding, access roads, perimeter fencing, storage facilities are often part and parcel of a contract but are not designed and are left to the contractor. Such works can be expensive and can go wrong leading to further expense and consequential loss.
- Unsuitability of materials: Contractors may erroneously utilize materials that do not meet the specifications and have not been agreed. This can be very expensive if the materials prove not to be fit for the purpose intended.
- Fees –Sometimes a contractor earns fees (as opposed to turnover). They might project manage for other contractors or carry out other professional functions such as design or quantity surveying. These activities would be rated the same as a professional firm carrying them out.
HOW IS A CLAIM TRIGGERED?
THE INSURING CLAUSES IN A NUTSHELL
The Insurers will protect and cover the BUILDER on the payment of a premium against claims made during the Period of Insurance which arises out of THE BUILDER and PROFESSIONALS duties and activities:
Sub Section 1-
- The Insurers will cover the Builder against Loss of or Damage arising out or resulting from any defect, failing, fault in the Contract Works discovered prior to the issue of any Practical Completion or Take Over Certificate. So long as any such defects result from a negligent or careless breach of a professional duty or activity by the Builder or those for whom the Builder is responsible.
Sub-Section 2 –
- Any claim for which the Builder shall become Legally Liable to pay compensation arising from a negligent breach of Professional Duty or Activity by the Construction company
WHAT DOES LOSS MEAN?
Loss shall mean:
- (a) actual expenses including re-design and replacement that are reasonably and necessarily incurred in rectifying or repairing any fault, deficiency, shortcoming or defect in the contract works, including any consequential loss arising from
- (b) defect and caused by the breach
Note: Should the loss be indemnified under the following risks products then there is no right to recovery on this policy:
- Contractors All Risk
- Products Liability
- Plant All Risks
- Public Liability
SHOULD THE CONTRACTOR SUSPECT A POSSIBLE CLAIM, WHAT THEN?
WHAT IS AN INDEMNITY LIMIT?
Put simply, an indemnity limit is the maximum amount that an insurer will pay out for any one claim or the total of claims within any one policy year.
- The Maximum cover per claim or series of claims. The cover includes all costs,interest thereon, all claimants’ costs, fees and expenses and Defence costs as defined
- The Total Liability of the Insurers, in terms of the Insuring Clause:
- Per Claim or series of claims arising from one originating cause or source, including here under
- In respect of all claims per Policy Period
- shall not exceed the Limit of Liability per occurrence including all costs and expensesincluding Defence Costs or any aggregate Limit of Liability per annum
- A contractor won a tender to build a commercial building. It sub-contracted out the design work to a firm of architects and structural engineers. Incorrect design led to the foundations being laid out incorrectly. As a result, the work had to be redone which led to increased costs and a delay in the project.
- If the client brought a claim in this situation, the contractor would look to the professional firm to provide an indemnity. But what happens if the professional firms’ Professional Indemnity policy doesn’t respond (claim repudiated) or is inadequate? It might have lapsed, or cover might have been refused due to policy issues.
- The contractor is left fully exposed as the client will look to them to resolve the matter. After all, the contractor took on the design responsibility when winning the contract.
Failure to comply with written specification
Negligent project management
Structural design defect
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