Professional Indemnity - can anybody afford not to have it

No-one should underestimate the value of Professional Indemnity (PI) insurance, especially within the UK’s construction industry which currently employs over 2m people across the country.


April 30, 2024

Navigating the Gap in Construction Regulation

No-one should underestimate the value of Professional Indemnity (PI) insurance, especially within the UK’s construction industry which currently employs over 2m people across the country [1]. 35% of which, according to the Construction Industry Training Board (CITB), are self-employed, with the remainder employees of PAYE/VAT registered companies [2].

From design flaws to improper materials to the construction itself, unfortunately a building site has the potential to resemble those memorable first five minutes of an episode of Casualty. Crucially many contractors are not aware of their legal responsibilities at each stage of the process and how a lack of appropriate insurance this can leave them extremely vulnerable. PI insurance can not only provide valuable peace of mind but cover the often crippling cost of compensating clients for loss or damage resulting from tangible mistakes or negligence.

Protection against what may follow

It should be seen as an essential way to protect against the inevitability of human error. If only such a thing existed for everyday life. It protects against claims for loss or damage made by clients or third parties as a result of the impact of negligent services. Even if that service or advice is offered for free. Our Associate Director Macauley Geddes explained “We are all human and as such we unfortunately all make mistakes. Even if we do not make a mistake ourselves, we can easily be drawn into the mistakes of others. PI insurance can protect you from all the ramifications that may follow afterwards.”

An inexplicable gap

Only in certain industries. PI is essential in governmental or educational institutions, however there is a lack of enforcement in many other industries. But that is not to say it is no less valuable, especially in the construction sector.

Focusing in on the vulnerabilities of the construction landscape, despite the extremely high stakes and complexity of the work undertaken in this critical sector, it may surprise many that PI insurance is not usually a requirement. But this merely serves to highlight an inexplicable gap in regulatory mandates for the construction industry. Rather than suggesting a lack of its importance.

Understanding the ‘duty to warn’

Even outside of traditional design roles, various errors and omissions can still occur on consultancy work leaving professionals extremely vulnerable. Construction professionals often engage in design work and need to alter plans based on the many practical considerations that will often present themselves, unintentionally exposing themselves to risk. Macauley mentioned Of course it can be natural for constructions experts to want to make smaller changes to the design work – after all, they’re the people on the ground and we all know things can and do change. But by doing so, they need to understand that they make themselves liable for any problems that occur as a result of these amendments, whether unintentional or not.”

Professionals also have a duty to identify and flag potential issues in the plans they receive. If things are missed, however small, they can still be held legally liable due to their “duty to warn”. Three small words that it is much better to know about ahead of time compared to hearing them cackled down a phone by the opposing team’s solicitor. Macauley helpfully added I’ve witnessed this happening in two large companies, both of whom were hit with large defense costs and settlements. Contractors have a duty of care to warn of design defects and it should be implied in their construction contracts.” This insight reinforces the need to see PI insurance as a priceless barrier to the huge financial blows should such claims arise.

Remember, even if work is subcontracted out, and the initial contracting firm remains responsible for the design work, they must ensure they are protected in the event of omissions or errors.

The devil’s in those details...

So it’s important to know that if contractors tweak a design, even to a miniscule degree, they are responsible for those alterations and any subsequent effects. If a plan is altered, this can result in huge liabilities should any issues occur.

Seemingly minor work such as scaffolding, access roads, perimeter fencing and storage facilities are not designed and hence are the responsibility of the contractor. Any mistakes or oversights can lead to further expense or consequential loss. Even the use of unsuitable materials can also leave contractors liable.

Real world examples

Specialist contractors are considered experts in their field and their guidance will be treated as such. They have a responsibility to point out defects and dangers in all aspects of the work they oversee. Macualey recalls “I remember the case of a piling contractor who worked from a drawing that was miscalculated by a few millimeters resulting in subsidence. While it may seem like contractors are just hired to turn up and do the job, being aware of errors and discrepancies is a significant part of that. This could also apply to cladding firms fitting panels that are clearly unsuitable for the job involved. There is a huge amount to consider.”

Spreading awareness

Construction professionals often do not believe they require PI insurance unless explicitly requested by a client or project. This misconception leaves them in an extremely risky position should errors be uncovered. Even in cases where nothing untoward has occurred, this unfortunately is not a barrier to being sued. PI insurance can cover defense costs which is vital to protect businesses against unfounded claims as they are investigated. So if there is one takeaway it’s to ensure the need for professional indemnity insurance has been carefully assessed. Hence its best seen as best friend for contractors i.e. always there for you especially when needed.

Look beyond the cost

Historically, affordability has been a concern with significant industry events such as the Grenfell Tower fire affecting affordability and accessibility. However, the market for PI insurance in construction is becoming increasingly competitive with increased insurer participation leading to more favourable rates.

While costs may seem prohibitive at the start, it’s important for contractors to consider the financial threat to themselves and their business in the unfortunate event they are met with a claim. Of course there are other elements to consider, with risk increasing as the array and scale of work or projects increases. As with all insurances often the best is advice is not whether you can afford it but rather can you afford not to have it?

To find out more about Professional Indemnity Insurance, or to talk directly to Macaulay Geddes about your specific needs, please head to our website here.



[2] https://www.crewitresourcing.c...;

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