According to construction insurer MECON, 45% of building failures are a result of design issues. Without professional indemnity (PI) cover builders run the serious risk of being uninsured when they are dragged into litigation over defective design.
Typically, an owner or principal will have a relationship with their builder but not with the subcontractors or consultants the builder engages. So, when something goes wrong it’s the builder they go to. If the consultant or subbie denies responsibility or has gone bust the builder could be left carrying the can.
Even if the builder was not responsible for the design or engineering specifications, they are likely to be joined to any legal action as it is common practice for all parties to be pulled in.
A building owner in Australia claimed damages of $10m from their builder after the roof of a newly constructed commercial building collapsed during a storm. The builder felt they were not at fault because they had subcontracted a structural engineer for the roof’s design.
Without PI insurance the builder’s only options were to a) have the engineer accept responsibility or b) make a claim against the engineer and hope for a successful outcome to reimburse their costs, including hefty legal bills.
It is common for consultants to limit their liability within their contractual terms and conditions, so even if the engineer accepted responsibility their obligation to pay would have been contractually limited, leaving the builder caught in the middle.
With PI in place the builder’s policy will cover their defence costs and the damages awarded against them, up to the limit of the policy.