This is the second in a two-part series on Professional Indemnity Insurance (PII). This post will provide more details and provide some case studies.

The Main Exclusions of Professional Indemnity Insurance

  • fraudulent or international acts
  • contractual liabilities
  • express warranties and guarantees
  • time and cost overrun
  • non-compliance with building regulations
  • costs of redesigning plans, specifications, or schedules
  • construction damage if designers are within the same legal entity as the Contractor
  • cross-liability, if not otherwise agreed
  • fines and penalties
  • loss of profit, lack of performance (entrepreneurial risk)
  • asbestos
  • gradual pollution

The Premium Basis of Premium Calculations

The Premium rate depends on:

  • type of covered activity
  • nature of the project
  • type of service(s)
  • experience of the Architect/Engineer
  • total fee income
  • contract value
  • territory
  • claim experience
  • limit of indemnity
  • insurance duration, retroactive period and extended reporting period

Case Study 1

An Architect/Engineer was sued by the Employer for allegedly failing to properly supervise a Contractor engaged in propping up a building during redevelopment. The props used were inadequate to support the loads on them. As a result, part of the building collapsed.

The Architect/Engineer argued that his duty was only to periodically inspect the Contractor’s work, which he did, and not to supervise it. However, there was doubt as to the terms of the Architect/Engineer’s retainer. Additionally, some evidence in correspondence suggested he may have offered to do more than this.

As a result, the Architect/Engineer’s insurers contributed to a fair settlement involving the Contractor.

Case Study 2

In a second example, a fire destroyed a newly completed supermarket. The fire wall that was built to the Architect’s specification did not extend above the ceiling joists.

The insurers paid out and then filed a subrogation claim against the Architect to recoup their losses. The basis of their claim was that, if the firewall had extended into the ceiling void, the building would not have been completely destroyed before the fire brigade put out the fire.

The court found there was good evidence to suggest that the fire had started in the storeroom and spread along the roof void before engulfing the whole building.

Therefore, the Architect/Engineer’s Professional Indemnity insurers contributed a fair amount to a joint settlement with the insured.

Case Study 3

In yet another case study, proceedings were commenced against an Architect/Engineer by the owner of an office building for specifying the use of high aluminium cement in the construction of the building.

The court found that the Architect should have known the problems associated with this type of cement and specifying the material to be used. Therefore, it found him liable for repair costs.

Case Study 4

One last case study involves an Architect/Engineer acting as a Project Manager (PM) who was held liable for failing to check calculations applied by the Engineer in relation to the loads to be imposed on the suspended floor of a new factory.

While the court held that the Architect was entitled to assume that the Engineer was competent, it decided that if the Architect had given the calculations even a cursory check before passing these to the Contractor, he would have seen that they were obviously wrong and that the floor would not be strong enough for its intended use.

The Architect/Engineer’s insurers had to contribute proportionately to the settlement.

This guest post was written by Mansoor Ali, FICCP. It is the second in a two-part series and was originally published as a LinkedIn video, viewable here. Part one of this series can be read here.