Professional Indemnity insurance: When do you need it?
Requirement for Professional Indemnity insurance for construction companies explained.
What you need to know…
The current insurance market for PI or Professional Indemnity insurance for construction companies is changing rapidly. Very shortly PI is likely to become mandatory for all Construction Companies, writes David Lynch, Capital Cover Group.
What is Professional Indemnity?
Professional Indemnity insurance is to cover your legal liability for the advice and design that you provide and also ensures protection against liability for breach of professional duty that you may face when providing a service. The definition of ‘design’ however has become much wider than ever before.
Background: Professional Indemnity for Construction
It is not too long ago that Professional Indemnity (PI) insurance for contractors in the construction industry was practically unheard of.
In those days, the employer engaged a team of professional designers and presented the plans and specifications to the contractor to build.
During this regime, responsibility was clearer than it has been at any time since and although the contractor often provided “ad hoc” advice on site, design responsibility was left fairly and squarely with the professional design team.
“In simple terms, a PL Policy is there to cover your actions (ie, what you do) whereas a PI Policy covers your advice (ie, what you say)”
Specialist Design and Build sub-contractors
For a number of years now, as design responsibility shifts further down the line, it has become common practice that specialist sub-contractors (such as Mechanical & Electrical, glazing, architectural facades etc) are required to carry Professional Indemnity insurance.
This is the case, even if the design work is carried out by professional, independent, insured consultants.
Building Control Amendment Regulations (BCAR)
The new Building Control Amendment Regulations (BCAR) have opened up the PI market to a wider audience and the requirement to carry PI cover is now becoming even more widespread.
The fact that main contractors must co-sign Completion Certificates and sub-contractors must sign Ancillary Certificates has entrenched the view that PI is necessary.
Professional Indemnity v Public Liability
Many contractors ask the question: ‘Do I not have cover for design under my Public Liability (PL) policy?’
‘The standard contractors’ PL policy does indeed cover claims for advice, design or specification provided that no fee is charged.
However, a PL policy is limited in the scope of cover it provides. It will cover claims for Accidental Bodily Injury to a third party, or Accidental Damage to third party property.’
• PL – A site operative accidentally breaks an antique vase when bringing materials into the house
• PI – Kitchen fitter installs a kitchen but it doesn’t meet the customer’s plans or expectations.
A Public Liability policy will not cover financial loss or damage to the contract works (either before or after completion).
In simple terms, a PL Policy is there to cover your actions (ie, what you do) whereas a PI Policy covers your advice (ie, what you say).
The most important thing, if you need PI insurance and want to get the best value, is to choose your broker wisely and look for one who knows the market, knows the product and has access to the most competitive terms available.
In general, it is not an overly expensive product.
For more details, contact David Lynch, Director of Capital Cover Group (Official Brokers to CIF) firstname.lastname@example.org
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