Professional Indemnity Insurance
Covers your legal bills and any compensation awarded if you’re alleged to have made a mistake in your professional service.
What Is It?
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
Professional indemnity insurance will pay your legal bills (and any compensation awarded to the other party) if you’re held responsible for a mistake in your professional service.
Currently, the cover available to construction industry professionals is limited to certain activities. It is mostly suitable for building contractors that provide or are responsible for these services:
- Engineering specification
- Land surveying
- Quantity surveying
- Project management services
For electricians, plumbers, drainlayers, gasfitters and HVAC installers it can cover liability for errors & omissions in certification, specification and design services.
Professional Indemnity Insurance is defined as protecting you and your business against claims for alleged negligence or breach of duty arising from an act, error or omission in the performance of your professional services.
It will only cover your liability for the specific activities described on your policy schedule, so it is critical that this is accurate.
This short video explains the key points of professional indemnity insurance.
Speak to an Adviser:
0800 284 584
DESIGN, SUPPLY & CONSTRUCT
An insured was instructed by the main contractor to design, supply and construct the timber frame for a new primary school. A claim was brought against them after a structural failure was assessed, leading to the school’s closure, remediation and associated costs. Initially thought to be related to the failure of a glue used, the claim was later amended to include defects in the design.
The contractor was appointed to provide piles to support foundations for a luxury residential property. After cracks started to appear it was discovered that many of the piles were not capable of supporting the load from the building, causing the foundations to settle and the building to crack.
The insured sub-contracted the electrical installation work for part of a large shopping centre project. The design and construction work was alleged to be performed in breach of contract and urgent remedial works were required.
The claimant (the development’s management company) alleged that the Insured had breached its duty to exercise reasonable skill and care in the design and supervision of the construction work and to ensure that the development was reasonably fit for its intended purpose. The claimant sought substantial damages.
Policy Key Facts
This is meant as a summary of the most important items in 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 mistakes made by your subcontractors and consultants on a job
- The cost of defending complaints made to statutory disciplinary boards
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”.
Only the activities specified in the policy schedule are covered. For building contractors this is typically limited to design, engineering specification and quantity and land surveying services. It may also cover project management (if specified) for companies that provide this as a service.
WHAT'S NOT COVERED
- Your liability for damage to actual property (for this you need public liability insurance)
- Claims associated with the failure of a product to meet its manufacturer’s specifications (this should be the manufacturer’s liability)
- Claims associated with the supply of goods
- Faulty or inadequate installation, workmanship or construction
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 constructed the building) and then continuously until you are first advised of a potential claim and the insurer is notified. The policy schedule will include a retroactive date, and only events that occur after this date are covered.
- If you cancel the policy, or fail to renew it for a period, you will lose cover for any past events
How Much Does It Cost?
The cost of being held liable for a mistake that causes someone else a financial loss could easily run to tens of thousands of dollars in legal bills and damages. Compared to this, professional indemnity insurance is an essential investment in managing your risk.
Request a quote today to see how much your own cover could cost.
Terms & Conditions
View our current policy wordings. Existing policyholders may be on a previous version. Specific endorsements to this wording will be individually noted on your policy schedule. In some cases we may recommend an alternative insurer, if so we’ll send you their policy terms & conditions.