Why Professional Indemnity Insurance is vital for builders
Using consultants and sub-contractors on your building project is becoming commonplace, with many builders outsourcing designs or having design and construct contracts in place. To protect you and your business you need to better understand how this type of arrangement exposes your business to potential losses.
In the past, Professional Indemnity insurance was mainly considered necessary for architects, designers, engineers and similar professions, but times are changing. You should be aware that as a builder a degree of liability will sit with you - even if an external company has been sourced for the design work.
If your business provides design, product specification or other services in addition to your construction activities then you assume the responsibilities and liabilities of a design professional. Regardless of whether you provide these services in-house or engage an external consultant.
Even if it turns out you are only responsible for a small percentage of the loss, it costs your business time and money to defend a claim. How would your business cope with a potential loss in excess of $100,000 if you are not appropriately insured?
Make sure your business is protected
45% of buildings that fail are because of design issues, says Mecon CEO, Glenn Ross.
“Defective design risks aren’t fully catered for in the material damage and public liability covers obtained by most builders, leaving them exposed to litigation for defective design and/or the vicarious liability of subcontractors and consultants engaged from time to time,” he said.
Since your client has a core relationship with you, regardless of whether you are ultimately liable for a problem you can become the target of legal action. Professional Indemnity Insurance gives your business the peace of mind knowing you will be covered for an alleged design liability.
What is Professional Indemnity Insurance?
Professional Indemnity Insurance provides protection for the legal cost to defend yourself against an actual or alleged error, act, omission or breach of professional duty in your work.
It can protect your business and reputation against a range of claims including actual or alleged errors in council submissions, lost or poor work documentation, design flaws, inadequate advice, and acting without proper instructions from your client. This type of policy will cover you as the builder if you need to take a subcontracted party to court, or for damages against you if the subcontractor ceases trading.
Types of Professional Indemnity claims
There are a range of design flaws that may arise where the client will look to the builder for liability, even if it is something that is a result of a design defect from a subcontractor. Some examples include
- A balcony collapse due to a faulty design
- Cracks in a slab due to negligence
- A slip and fall injury due to tiles being used that are not slip-rated to the correct level
- A building that is constructed as per plans but it does not comply with building codes so needs rectification works
You already have professional indemnity insurance but do you have the right cover?
If you are a contractor or builder providing design or other professional services in addition to or as part of your construction activities for clients you 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 should be aware that you may assume liability. This liability may extend 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.
Don’t risk your reputation. As a construction business (not exclusively design), you need to ensure you have a Design and Construct professional indemnity policy. Design and Construct policies cover the broader definition of services involved in designing and building. If you have an alternative form of professional indemnity insurance in place you run the risk that the properties you have constructed will not be completely covered against liability.
If you are unsure whether you have the right policy for your business get in touch with us and we’d be happy to help. CGIB offers specialist Professional Indemnity policies for builders.
The information provided in this article is general advice only. General Advice is advice that has been prepared without considering your current objective's, financial situation or needs. Therefore, before acting on this advice, you should consider the appropriateness of the advice having regard to your current objective's, financial situation or needs. Read our complete general advice warning.