Construction & Property Contractors: Professional Indemnity Insurance Claims & Risk Management

It is now well established that there is a growing need for Contractors to maintain Professional Indemnity Insurance. This is due to firms increasingly taking on design liability, either performing such work themselves via an in-house design team or sub-contracting the design portion out to other firms, such as architects and engineers.

A number of systemic issues are currently impacting the construction sector, which are likely to have a knock on impact both on the number and severity of the claims seen by firms. Factors such as increasingly tight margins; project delays arising from staffing or material shortages (or both); and increasingly onerous requirements from clients and the government in terms of regulation, create a fertile ground for claims to arise.

Many of the issues creating such claims are difficult to resolve. Because of this, it is more important than ever for firms to have effective procedures in place to ensure they are complying with the terms of their insurance, and so they have adequate support from their professional indemnity policy in the event a claim arises.

Consideration should be given to the following points within your professional indemnity insurance policy:

Please note, policy conditions vary and the following is not intended as an exhaustive guide, if you have any questions regarding your policy please do not hesitate to contact Howden.

Notification of claims or circumstances:

It is a requirement of professional indemnity (PI) policies that you notify insurers of any claims or circumstances (any fact, matter or occurrence which may/is likely to give rise to a claim) as soon as possible. This requirement extends to adjudications, where policies often contain tight timescales for reporting to insurers (such as 24 or 48 hours). Care must be taken to ensure such time frames are complied with.

Duty to cooperate:

Within PI policies, it is not uncommon for there to be express conditions for the insured to cooperate and assist insurers with the collation of a file, investigation, settlement and/or defence of any claim.

In the event a formal claim is received, it is prudent for firms to begin to collate their file on the matter. It is also important that documents are preserved in their original format as any mislaid/destroyed documents could be prejudicial to the defence of a claim.

Admissions of Liability or Offers to Settle:

Professional indemnity policies often contain an express condition prohibiting you from admitting liability (admitting fault) or offering to settle claims, without the consent of the insurer. Whilst firms may be adept at avoiding explicit admissions of liability, correspondence could also be construed by the claimant to amount to an admission and as such, it is prudent to ensure you have your insurer’s approval prior to issuing any correspondence relating to the claim.

Conditions Precedent:

Conditions precedent are not uncommon within policies, particularly surrounding conditions which deal with the notification of claims and you should ensure that you are familiar with such conditions within your policy. Where your policy does contain such conditions, failure to comply may entitle insurers to refuse cover for a claim.

If you are an existing Howden client and wish to discuss any conditions within your policy or have any claims related questions, please contact your broker who can put you in touch with our specialist in-house claims team.

If you are not a client but would like to find out more or speak with one of our brokers, please contact usand we will get in touch.