ERRORS & OMISSIONS INDEMNITY
Under the Building Act builders have a “duty of care” to build something that is “fit for purpose”. This duty of care applies to all trade professionals as it is also an established principle in cases of negligence.
A duty of care can be owed by:
- a trade professional to their client
- a builder to subsequent purchasers of the property
- sub-contractors to the principal or owner, and subsequent owners
Increasing numbers of cases are being brought against builders and tradespeople, claiming they failed to meet their duty of care to their clients.
Public liability insurance only covers claims for accidental damage to property (or in some cases injury). It does not cover you if the claim relates to an act or mistake where there isn’t property damage but where someone will still be out of pocket.
Errors and Omissions (E&O) is professional indemnity insurance for builders and trade professionals. It will pay your legal bills if you’re held responsible for a mistake that has caused someone financial loss. The mistake could have been made by a subcontractor or someone else working on your behalf, but you’re held liable for their actions.
A builder, working as a labour only contractor, had to pay $50,000 in legal fees and damages after a wrought iron balustrade installer penetrated the waterproof butynol lining of a deck he had built years before. He was found partly liable, despite not being involved in arranging or supervising the work.
A builder was named as a defendant in a leaky home case, even though all he had done was correctly repair a window. He hadn’t even built the property! It cost him $40,000 just to be removed from the law suit.
A builder in Rotorua was forced by the WHRS tribunal to rectify weathertightness problems with a house he’d built. The owners had wanted a particular type of cladding, which he told them wasn’t up to spec. They insisted, so he made them find another installer themselves, he wouldn’t have anything to do with it. However, as he was managing the project, he paid the installer when the bill came in. Unfortunately, in the eyes of the tribunal that made him liable, even though he had paperwork to prove he had objected.
Almost 10 years after he’d built the house a builder was ordered to appear before the Weathertight Homes Resolution Service to defend claims he’d built a leaky home. The new owner wanted the house completely reclad on a cavity. The builder paid $20,000 in legal fees and $10,000 in compensation, when the only problem identified by the survey was actually caused by moisture penetration from a window box that had been installed many years later.
FOUNDATION LAID TOO CLOSE TO BOUNDARY
A builder in Wellington subcontracted foundation work to another firm, which laid the slab in the wrong place on the property, meaning it was too close to the boundary. This was not picked up until the final inspection and the builder was held liable for the cost of rectifying the problem.
HOW MUCH DOES IT COST?
The cost of being held liable for a mistake that results in someone being out of pocket could easily run into thousands of dollars in legal bills and damages. Compared to this, Errors & Omissions Indemnity premiums are an essential investment in managing your risk.
Premiums start from $750 + GST per year, depending on the size of your business and the amount of cover you need.
POLICY KEY FACTS
This is meant as a summary of the most important items of the policy. For a complete understanding of what it does and doesn’t cover you should always read the full policy wording.
- What you’re legally liable to pay if you or someone employed by you makes a mistake resulting in a financial loss for someone else
- Payment of associated costs and expenses such as legal fees
- Costs incurred by you through errors or omissions made by your subcontractors and consultants on a job (you’re covered but the insurer may seek recovery from the subcontractor or consultant)
- The legal costs of defending license or disciplinary proceedings brought against you by the Building Practitioners Board
Because your liability extends for 10 years under the Building Act, cover is available even after you stop trading or retire. This is known as “run off cover”.
WHAT'S NOT COVERED
- Your liability for damage to actual property. For this you need public liability insurance
- Liability from performing inspections, valuations and builders reports
- Liability arising from the failure of products to meet their manufacturer’s specifications
OTHER THINGS YOU SHOULD KNOW
- An excess is payable for each claim.
- The policy is a “claims made” one. This means cover must be in place when the event occurred (eg. when you built the house) and then continuously until you are first advised of a problem and contact us to make a claim.