Construction Professionals. Why do I need Professional Indemnity Insurance?
Construction Professional Indemnity, also known as Design and Construct Professional Indemnity, is designed to protect contractors and sub contracted specialists, such as electrical engineers or cladding contractors for allegations relating to errors in their work or incorrect design.
Contractors and engineers are all used to buying Public and Employers Liability Insurance but over the last ten years, more and more contractors are being asked to hold Professional Indemnity Insurance as part of a contract or tendering process. We can help arrange the right cover for your contract or tender.
Not all contractors will carry out design work, which is why we can appreciate the lack of understanding for its necessity. As a result,it is often common that a contractor will not want to buy the insuranceas it can feel like another cost eating into the profitabilityof a project! We help keep the costs low without compromising on cover.
On larger builds the principle contractor may provide the design or contract the services of an architect or engineer. But that doesn’t mean that a builder or air conditioning engineer is off the hook, and shouldn’t hold Professional Indemnity to cover themselves for their involvement in a design and build contract.
"I'm a builder, so I don't need Professional Indemnity. I pay an architect to carry out the design."
The common misconception is that if you didn’t do the design, your client can go straight to the person that did. However, your client has signed a contract with you, and as such believes you to be responsible for all elements of the design and build. Therefore, in the unfortunate event that something goes wrong, the contractor will be the first point of call as they have the relationship and duty of care to the client. The client will find it difficult to pursue a third party, as no legal relationship exists, which is why collateral warranties have now become so widely used.
"I'm only a sub-contractor, so I fall under the principle building contractors Professional Indemnity Insurance."
Half true ….. Some Design and Construct Professional Indemnity policies will say that sub-contractors are covered, but not all do. Some insurers may request to be notified and have the contractor listed on the Professional Indemnity policy schedule, whereas other policies may say that the contractor should maintain a minimum level of cover,typically £250,000 – £1,000,000.
"What if the contractor goes bust?"
In times of economic unrest, it’s an unfortunate fact of life that construction companies can fold. Sometimes the sub-contractors are the ones left holding the baby, with clients then trying to pursue claims against them.
The above aside, mistakes can happen and when something goes wrong people will always look for someone to blame. So why take the risk and not have your own Professional IndemnityInsurance policy in place?
So what cover can a Design and Construct Professional Indemnity Insurance policy give me?
Professional Indemnity covers legal costs and damages in relation to alleged errors in the design or the construction process. For instance, the incorrect design by an electrical contractor for the wiring of an office block, a project not being fit for purpose or a builder using the incorrect materials in the process of building new homes.
Our Professional Indemnity Insurance policies are tailored for the construction industry and can include the following invaluable extensions, with cover limits ranging from £100,000 – £10,000,000 and higher;
- Rectification Cover – costs incurred in remediation work or mitigating a loss or potential loss that may otherwise result in a claim, subject to specific requirements.
- Specialist Consultants Cover – claims resulting from any wrongful act committed by one of your specialist consultants, designers or subcontractors engaged in the performance of your professional services.
- Asbestos Cover – claims in connection with, based upon or attributable to the presence or release of asbestos containing materials.
- Collateral Warranty Cover – claims arising from any collateral warranties, duty of care or similar agreements provided by you, to the extent that such liability would have attached to you in the absence of such contractual duty, term or agreement.
- Fitness for Purpose Cover – claims arising out of any fitness for purpose warranty solely with respect to the design and/or specification of any works.
- Consequential losses – Cover for Indirect losses which accompanies an insured loss, for instance the loss of earning to a third party following a claim.
- Fraud and Dishonesty Cover – liability of your business to any third party resulting from fraudulent or dishonest conduct of any employee.
- Lost Documents Cover – costs of replacing or restoring documents lost in your custody or control.
- Court Attendance Cover – if attending court as a witness by any principal, partner, member, director or employee when defending a claim, a typical rate of £250 -£500 per person per day.
- Health & Safety Legislation Cover – reasonable costs and expenses incurred with the insurers prior written consent for defence of any proceedings first brought against you under the Health & Safety Legislation
- Pollution Cover – claims arising out of the actual, alleged or threatened, sudden or accidental presence, discharge, dispersal, release, migration or escape of pollutants other than asbestos, nuclear or radioactive material of any sort.
- Defence Costs Cover – covers defence costs incurred with the insurers prior written consent.
- Innocent Non Disclosure – Insurers will not exercise rights to avoid the insurance cover for innocent non-disclosure or innocent misrepresentation.
- Breach of professional duty
- Infringement of copyright or intellectual property rights
- Breach of confidentiality
Call or email us today for a comprehensive insurance policy at a competitive price.
Telephone: 01732 252898
The best way for us to understand your business and get the best premium back from the market is for you to complete our proposal form.
If you have already completed a proposal form, please feel free to send a copy to
Alternatively if your renewal is not due yet, register with us now so that we can contact you nearer the time.
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Our account managers will arrange Professional Indemnity and Liability policies at a competitive price with comprehensive wordings which are acceptable to your clients or Professional Body.
Have confidence that Clarke Williams can help your business.
Here are a few of the trades we have helped provided Professional Indemnity and Liability Insurance for:
Heating & Ventilation Contractors
Refurbishment and Shop Fitters
Clean Room Construction
Building Services Contractors
Hazardous Location Contractors
Renewable Energy Contractors
Industry Professional Bodies and Trade Associations
Still not sure about what you might need? Some professional bodies may give guidelines on what levels of insurance a construction company should hold. Below is a list of some of the main construction bodies within the UK, it may be useful to consult with them if you do not know your requirements;
Where's the Risk? How do insurers calculate a contractors Professional Indemnity Insurance Premium?
When looking at a contractor’s business insurance there are a number of factors that can affect the terms provided.
Turnover and responsibility splits
The turnover is an important rating factor when an underwriter is considering an insurance premium, as this is the one element that all companies can be judged on. The Underwriter will also consider whether your firm constructs from others designs (for example an architects) or if the majority of the design work is carried out in house.
The size and complexity of past and present contracts are also taken into consideration. The insurers proposal form will ask you to detail the work that you are involved in. Small housebuilding projects can be considered lower risk, as opposed a lead contractors, working under the Decent Homes Program undertaking a substantial build.
Does the business carry out any work overseas? Specialist Contractors often find that their services are required all around the world, especially in developing countries where there can be a skills shortage. The legal requirements in other countries can be very different to the UK, with countries such as the United States and Canada being more litigious. Subsequently this can affect the premium offered.
Number of years trading and experience
Newly established businesses can be seen as a higher risk to insurers, as there is a lack of trading history to confirm a good claims experience and ability within the industry. When presenting a risk to an insurer, it can be beneficial to provide a copy of the directors’ CV’s, as this can present a better picture of the business or person being insured.
Activities and sectors will have their own rating of risk, and insurers will be interested in the types of projects and discipline’s in which the contractor is involved in. For instance, a building contractor, electrician or air-conditioning engineer working on individual dwellings, offices or shops can be considered very low risk, compared to a mechanical engineer working in a water processing plant. The ratings for each trade and type of client are different due to the level of risk and the size of a potential claim that can occur.
"It will never happen to me". Still not convinced? Have a look at the below claims examples for Contractors Professional Indemnity Insurance:
We hope it will never happen, but here are a few claims examples from the real world.
Structural design defect
Incorrect structural calculations contributed to a total building failure of a new office.
Amount Paid £550,000 plus costs.
Extraction fans within a hotel kitchen failed to work properly. The hotel restaurant was closed pending repairs.
Amount Paid £250,000 plus costs.
An audio and visual contractor failed to follow installation plans for a new PA system at a stadium. The system didn’t comply with BSI standards and the error had to be put right before the stadium could be used again.
Amount Paid £675,000 plus costs.
Bodily Injury as a result of a design defect
A cladding contractors design of a shopping centre façade did not have adequately designed fixings to support the structures weight. As a result, a section of the structure became loose, injuring a member of the public and damaging cars and nearby property.
Amount Paid £1,200,000 plus costs.
A building contractor was employed on a design and build basis to construct a private medical Centre. Design works were subcontracted to engineers. Design errors became apparent in the building control systems during construction leading to rectification costs and delays. The engineers had ceased to trade and their PI policy was no longer in place, leaving the contractor to deal with the claim.
Amount paid: £720,000
Addition specifications go wrong
A glazing contractor was contracted for the refurbishment of a hotel lobby with a glass roof. The glazing contractor was asked to make some changes to the original agreed specification. The design was flawed and led to water penetration beneath. The glazers design was found to be deficient.
Amount Paid: £190,000 plus costs.
Clarke Williams Ltd are authorised and regulated by the Financial Conduct Authority under reference 758683. The Financial Conduct Authority’s Register can be accessed through http://www.fca.org.uk/ . We are registered in England and Wales with Companies House under number 10317065. Our registered office address is 194 High Street, Tonbridge, Kent, TN9 1BE
Clarke Williams Ltd
194 High Street
Tel: 01732 252 898
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