We often have builders ringing us asking for professional indemnity insurance because it’s a requirement in a tender or contract. Whether it’s suitable however depends on a number of factors.
If you’re not responsible for any of the design, engineering, surveying or other professional services, then it may not be necessary or appropriate. In that case, see if you can tag it out.
However, if you’re taking on a design and construct role, including making any incidental design and specification alterations during the construction, then it’s advisable to have cover in place. It also covers the contractor for liability that might attach to them for errors or omissions by professionals that they have engaged, such as architects and quantity surveyors.
Additionally, if your business operates in a project management capacity only then professional indemnity cover is advisable.
What is it?
Professional indemnity insurance protects you from claims of compensation for acts, errors or omissions in the performance of your professional business that cause another party a financial loss.
It differs from public/general liability, which typically covers damage to physical property. Public liability can also cover personal injury as well as the quantifiable financial cost to another party that stems from not being able to use physical property.
On the other hand, professional indemnity covers less tangible losses, such as the financial cost of a faulty design, survey or specification error or poor advice. It covers your legal defence costs and compensation you are ordered to pay.
How long do I need it for?
Professional indemnity insurance is of a type known as “claims made”. This means you need to have the policy in place when the claim is first notified to you, which could be many years after the project was completed. It also has what is known as a “retroactive date”, which is usually the first day you took out professional indemnity cover and is carried through to all subsequent policies. Only events after this date will be covered. That basically means you need to have the policy in place continuously from the start of the work through to when a possible claim arises, which could be up to 10 years! Project specific policies can also be arranged, which can cover individual projects for a specified number of years.
Shouldn’t the architect’s insurance cover it?
The architect’s insurance may cover their liability, but that won’t extend to your legal bills, nor will it pay any of the damages that the court deems you to be liable for. If the architect has gone bust then there’s no one else to carry the can but you. Additionally, the terms and conditions of many architects and other professionals contractually limit their liability to you in the event of an error. Leaving you once again to pick up the bill.
Claim Examples
1. A builder providing a full design & build service engages an architect and engineer to design the slab for a sloping block build. They stuff it up and this results in significant structural issues. The homeowner sues the builder, who has to pay both legal expenses and compensation alongside the architect and engineer.
2. The design for the façade of a retail complex didn’t properly design the fixings to support its weight. A section of it came loose and damaged nearby cars and property. This was not covered by public liability insurance (due to the cause being a design fault), so the claim was submitted under professional indemnity insurance.
In a Nutshell
If your business is responsible for any design, specification, surveying or project management services then professional indemnity insurance is an important consideration.
Builtin are New Zealand’s Trade Insurance Experts
For more information visit builtininsurance.co.nz
or contact Ben Rickard, Construction Risk Adviser and Director | ben@builtin.co.nz | 0800 BUILTIN
Disclosure: The information presented in this article is general in nature and not intended to be financial advice for individual situations. You should speak to an expert about your specific circumstances and needs.
