Do builders and construction consultants need professional indemnity insurance?

Professional indemnity insurance isn't only something accountants and lawyers need to think about.

Construction businesses can also face claims because of advice, designs, specifications or other professional services.

Whether you need it depends on what you actually do.

What does professional indemnity insurance cover?

Professional indemnity insurance can cover certain claims made against a business or professional because of an alleged mistake, negligence, error, omission or breach of professional duty.

In construction, that could involve services such as:

• architectural design
• engineering
• surveying
• building design
• project or construction consulting
• certification
• specifications
• professional advice
• other design or technical services

Exactly which services are covered depends on how the policy defines your professional activities.

Who in construction should consider it?

Professional indemnity can be relevant to people and businesses such as:

• architects
• engineers
• building designers
• surveyors
• certifiers
• project consultants
• construction consultants
• design-and-construct businesses
• builders that take on design responsibility

That doesn't mean every person in construction automatically needs the same policy.

The key question is whether your business provides professional advice, design or services that somebody could rely on.

Do builders need professional indemnity?

Sometimes.

A builder doing construction work from plans prepared and controlled entirely by other professionals can have a different exposure from a builder that also takes responsibility for design.

If your business offers design-and-construct work, changes specifications, coordinates design or gives professional advice, tell the insurer or broker exactly what you do.

Don't assume public liability covers professional mistakes.

Professional indemnity vs public liability

The two covers deal with different types of claims.

Imagine a visitor is injured after tripping over something on your construction site.

That is the type of event public liability may deal with.

Now imagine an engineering or design error causes a client a financial loss and they make a claim against the person responsible for the professional service.

That is the type of situation professional indemnity may deal with.

Depending on your business, you may need to consider both.

What if you subcontract the design work?

Using an external architect, engineer or consultant doesn't automatically remove every professional exposure from your business.

Your contract may still make you responsible for parts of the design or for work carried out by consultants you engage.

Check:

• what responsibility your contract gives you
• whether your consultants have their own professional indemnity cover
• whether your policy covers liability connected with consultants or contractors
• whether you need certificates of currency

Some professional indemnity policies treat contractors and consultants differently, so don't assume the answer.

What is a claims-made policy?

Professional indemnity is commonly written on a claims-made basis.

In simple terms, the policy in place when a claim is made can be important, rather than only the policy you held when the original work was done.

Policies can also have a retroactive date, which can affect how far back your cover reaches.

This makes continuous cover particularly important.

If you're changing insurers or considering cancelling professional indemnity, check how past work will be treated before making the change.

Do contracts require professional indemnity?

They can.

Clients, head contractors, government bodies and other parties can include professional indemnity requirements in construction contracts.

A contract might specify:

• the amount of cover
• how long it needs to be maintained
• which entities need to be insured
• what professional services need to be covered

Don't simply buy the number stated in a contract without checking whether the policy actually meets the requirement.

Is professional indemnity legally required?

It is mandatory for some Australian professions, and professional registration rules can differ between states and territories.

For example, architects can have professional indemnity requirements depending on the jurisdiction in which they practise.

If you work in a regulated profession, check the current requirements with your registration body or professional association.

What should you tell an insurer?

Be clear about every professional service your business performs.

That can include:

• design
• drafting
• engineering
• specifications
• project management
• certification
• consulting
• design changes
• design-and-construct contracts
• overseas work
• subcontracted professional services

Leaving an activity out because it only makes up a small part of your turnover can still create a problem if a claim comes from that work.

What should you compare?

When comparing professional indemnity insurance, check:

• the professional services covered
• the limit of indemnity
• the excess
• retroactive cover
• contractors and consultants
• geographic and jurisdiction limits
• exclusions
• how long cover needs to continue
• any contract-specific requirements

Price matters, but the policy also needs to match the professional work you actually do.