Design and Construct Professional Indemnity Insurance for Building Contractors

A design and construct professional indemnity insurance is unlike regular PI insurance and has been specifically designed for building contractors who take on contracts that include both the design and construction components of a building project.

When PI insurance first came about it was only designed for professional service providers such as architects, lawyers, and accountants where the only services being provided was professional advice in return for a fee.

As builders and architects started providing more professional advice and were taking on the design elements of building projects the regular PI insurance policy was deemed as insufficient and multiple gaps in the cover started to form which is why multiple insurers began offering a design and construct professional indemnity insurance specifically for building contractors.

Why do builders need a specific design and construct insurance?

The main reasons that builders should consider a design and construct insurance policy is due to exclusions being provided on regular professional indemnity insurance policies. The main exclusion that usually applies is the exclusion of manual work, manufacturing and construction of a project. The sole intention of this policy was to create a clear boundary between professional services provider and building contractor.

What does design and construct professional indemnity insurance cover?

As a professional indemnity insurance policy by definition it is designed to cover you for things like:

• Faulty designs and inaccurate advice being provided
• Breaches of legislation
• Failure to comply with code regulations
• Fraudulent and dishonest against
• Mitigation costs
• Defence costs
• Loss or damage to documents

Did you know that a large amount of claims paid under a professional indemnity policy are for defence costs?

Some of the most significant costs that are paid out under a PI insurance policy, regardless of your industry is for costs related to legal fees being incurred as defence costs for allegations made against the company.

The harsh reality of this is that generally speaking an allegation can be made at any time and regardless whether or not you are in the right or wrong defence costs can start to add up quite quickly.

A common example of a design and construct insurance claim

The insured was hired to instal a floor made of natural grey concrete in a home. When the floor was examined, the client of the Insured said they were disappointed with the quality and thought it would reduce the home’s current and future worth. The consumer asked the Insured for reimbursement for what they believed to be a financial loss. The insured informed BIA that they agreed with their customer and that the floor finish fell short of what they had anticipated. The challenge in this instance was that the floors weren’t exposed until the majority of the house was finished (and therefore couldn’t be replaced). In order to reach an amicable settlement, BIA collaborated extensively with the insured and their client.

Claim example provided by Berkley Insurance Australia

How to get a quote for design and construct PI insurance?

Along with most insurance products Design & Construct policies will usually need to be quoted through a Broker as its important to make sure that the policy offered is actually design & construct. If you just search for professional indemnity insurance for a builder this does not guarantee that this is a design & construct policy wording, in fact it likely isn’t.

Most insurers will require a proposal form to be completed before providing a quote.

Some of the information that is usually required is:

• A breakdown of your business activities for example, what percentage of your business is design only, construction only or a combination of both?
• An overall turnover estimate for all activities that you are engaged in
• What projects do you typically work on for example residential, commercial or industrial
• Whether design activities are provided in house by employees or contracted out to sub-contracting companies

It can feel like the information being requested is quite intense and it is very thorough as a design and construct insurance policy provides an extensive amount of cover for a broad range of activities and when providing both professional services and the construction component the risk to the insurer is far greater than a regular policy.

Do I still need Public Liability Insurance?

Yes, these policies are completely different and both are usually required. The good thing is with some insurers they will provide a combined D&C policy which includes both the PI section and public liability insurance. Some insurers won’t combine the sections together and a seperate builders public liability insurance policy will need to be sourced elsewhere.

Public Liability insurance covers you for negligent acts that cause personal injury and property damage where as professional indemnity insurance in more broader terms covers for negligent acts that trigger a financial loss. Both policies are completely different and get handled in their own rights.