Builders can be targeted for legal action if there are issues with the building - regardless of whether or not you’re liable for the problem. That’s why Professional Indemnity (PI) Insurance is vital, as it helps ensure your business will be covered for any actual or alleged design liability.
The policy provides cover for:
Breach of duty (including act, error, omission, misleading statement, breach of confidentiality)
Defence costs for actual or alleged breach of duty
Claims made and reported during policy period
Accusations of Misleading or deceptive conduct
Mitigation of costs coverage
45% of buildings that fail are due to design issues – so design risk is ever present.
Builders who engage consultants are exposed to any liability that results from that consultant’s work or advice. This exposure can be partial, for example, for simple defence costs - or total, where the consultant has ceased trading.
How it works
The following two case studies show how PI cover can work - and why it’s essential for construction businesses.
A builder with PI cover
The roof of a newly constructed warehouse collapsed during a storm. The builder had a design and construct contract for the warehouse, but had subcontracted the design for the roof to a structural engineer, and had built to that design.
The owner claimed damages of $10 million against the builder, who took a subrogated claim against the structural engineer. The builder’s PI insurer successfully defended the builder and paid $250,000 in defence costs under the policy.
What’s more, if the structural engineer had ceased trading, the builder would have been liable for the $10 million in damages, potentially without recourse. In that case, the builder’s PI policy would have indemnified him.
A builder without PI cover
A home-owner engaged an architect to help with the design of their home. The architect specified that a polyurethane coating should be put over a natural stone tile floor to protect the stone and enhance its appearance. Some time after the builder completed the job, hairline cracks developed across the whole floor.
The architect claimed that the cracks were caused due to defective workmanship. Even though the builder refuted this, the owner began legal action against him for about $1 million.
The builder was insured by a contract works policy and claimed against it. Evidence revealed that the polyurethane coating on the tiles caused the cracking, and the cause was therefore a design issue.
The builder’s construction policies excluded the defective floor, because the material damage section of the policy had expired on that contract. What’s more, the liability section didn’t cover design faults, or remediation of products. As a result, the builder had to fund his own defence costs of $70,000. However, if the builder had taken out PI cover, it would have paid his defence costs. The builder’s only hope of recovering these costs now is to sue and recover from the architect.
We can arrange a policy that includes the following benefits:
Employment practices liability - cover for claims against you by your employees with a sublimit of $25K.
Fidelity - cover for financial loss caused by employee dishonesty with a sublimit of $100K.
Principals indemnity cover - when contractually required under a contract to Indemnify the Principal, the policy will automatically extend to cover this situation.
Project Management - cover when you act in a Project Management role.
Mitigation costs, privacy breach costs, seepage and pollution are all covered with a sublimit of $250K each.
PR expenses, third party cyber exposure are all covered with a sublimit of $100K each.
Disclaimer: note that all coverage benefits detailed above are subject to the policies standard terms and conditions.
To obtain a quotation please download the proposal form and return to our office.