Design & Construct Professional Indemnity Insurance | What it really covers

Senior Underwriter Valerie Keown discusses how Design & Construct Professional Indemnity Insurance (or D&C cover) is often confused by those who do not deal with the product every day.

Whilst D&C cover is a financial lines-based class of business the traditional requirement of “fee for advice” does not apply. Many are under the impression that this class is rated in the same way as a traditional Professional Indemnity policy based on the fees that the Insured charges for their professional services. However, this type of policy provides additional coverage and is rated not only on fees charged for advisory services but also takes into account the total turnover earned from any manual construction or manufacturing activities undertaken.

The rule of thumb is that if the insured is performing, or responsible for under contract, any manual or manufacturing services in addition to professional services then the Design & Construction insurance cover is the appropriate policy.

The difference in cover is based on the insured’s exposures not only on the design or project management side, but also on the additional exposure that can occur as a result of the actual construction of the project. A traditional PI Construction wording usually provided to Engineers / Architects / Project Managers excludes claims in relation to any manufacture, installation, repair, construction, or sale of any goods – whereas the D&C cover does not contain the same exclusion. It is still important to note that the D&C cover is not designed to respond to matters such as faulty workmanship.

A traditional Professional Indemnity policy will have a specific business description for each insured based on their individual business activities, however a Design & Construction policy has a broad definition of Activities & Duties that have been specifically designed to respond to the varied professional services that a D&C contractor may be responsible for.

Insured’s that advertise themselves as a ‘one-stop shop for all your design and construction requirements’ are at risk of claims not only in relation to any perceived error in design, but also a customers’ opinion or expectation of the completed product.

Whilst a home design can be drawn up and plans approved by all parties prior to the commencement of construction, there is always a risk that the customer may have expected the “window to bring in more light” or that the floor finish would be “lighter and brighter”. If the customer feels these have a negative effect on the property value or resale value, it can lead to a demand for compensation for their estimated financial loss.

Some construction companies may feel that as they do not undertake the design of the project in-house but sub-contract this out to specialist third parties that there is no need for them to obtain any Professional Indemnity coverage.  However, if they have entered into a contract holding them responsible for design services the customer will still hold them liable for any error in design or advice that results in a financial loss.

Claims can occur from many aspects of a building project, from costs of construction had increased from the Insured’s initial projections to the failure of a product recommended or supplied by an insured for use in the construction, and in the absence of any Bodily Injury or Property Damage the Insured’s Public Liability policy will not respond.

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