Design & Construct Professional Indemnity Insurance

Developers of construction projects, their Funders and Bankers will insist on protecting their financial interests at every stage of a construction project and thereafter protecting their interests.

Ensuring that Professional Indemnity cover is maintained by those involved, from Architect to Contractor is one way to ensure they are able to protect their financial interests.

Contractors with limited or no obvious involvement in the design process are often required to purchase Professional Indemnity cover.

Something to be aware of is that Professional Indmnity Insurance is arranged on a “claim made” basis – which means that cover is only provided for claims made during the period of insurance – so if a contractor is required to purchase covers for 6 or maybe 12 years, insurance covers must be purchased annually for the period.

Construction Contractors are facing significant challenges in securing Professional Indemnity cover at reasonable rates or even cover at all,  due to a contraction in the Professional Indemnity Insurance Market

Can I buy cover for a single contract?

For almost all contracts, policies are purchased annually – single contract policies are available, but these are normally only available for major construction projects of £25 million and above, and are more  designed for large major projects, like bridges, tunnels, airports or large office blocks covering all professionals involved such as Architects, Engineers, Designers, Construction Supervisors/Managers, Surveyors and Contractors.

Although suitable for much larger contracts, if all parties are in agreement these are often not only more beneficial for the owners but also for Joint Ventures formed by consultants and contractors pooling their resources and expertise on large construction projects allowing guaranteed covers with total cost management of the insurance cover being established at the outset. It can then be budgeted and charged to the project.

Example Claims

The claimant sub-contracted to the Insured the M&E installation work on part of a major new shopping centre project. The electrical installation designed/constructed by the Insured was allegedly performed in breach of contract, and urgent remedial works were completed.

Settled £200k / Costs £32k

The Insured was instructed by the main contractor to design, supply and construct the timber frame for a new primary school. The claim concerned the structural failure of the school’s floors/ceilings, leading to its closure, remedial works and associated costs. The cause was originally considered to be the failure of the glue product used rather than the Insured’s specification. However following the disclosure of new expert evidence, the claim was amended to include design defects.

Settled £110k / Costs £15k

Following a catastrophic fire in a shopping complex with a number of contributory factors, the fire insurer issued claims against 13 parties including The Insured building contractor, alleging that the faulty design of an extractor flue allowed hot gases to build up. Whilst the claim was successfully defended, irrecoverable costs  were incurred

Settled £0/Costs £80,000

The Insured designed and installed the heating and ventilation for a restaurant. Post completion, air extraction and temperature control failed to work properly. The restaurant had to close pending repairs.

Settled £150,000/costs unknown

The Insured was contracted to design and build a cold storage room in a food processing factory. After completion, the temperature of the room consistently remained too high because of inadequate design.

Settled: £250,000/Costs unknown

The insured was contracted for the refurbishment of domestic flats to a previously agreed specification and was asked to fit some additional external balconies not included in the plans. The design of these balconies subsequently led to water penetration into the flats beneath. The builder’s design was found to be deficient.

Settled £150,000

The insured designed and built a new car park building. Incorrect structural calculations contributed to total building failure.

Settled: £550,000/Costs unknown