Why builders need Professional Indemnity

Professional Indemnity insurance gives builders protection against claims of incorrect or incomplete advice and professional services.

It costs time and money to defend against a claim. Builders could be held responsible not only for their own actions but also for those of partners, employees and even consultants.

It protects businesses against legal costs and claims made by third parties.

Exposure may include:

Design and construct
Incidental design and specification alterations made during construction
Building design work
Project and construction management
Vicarious liability for negligence of other professionals, i.e. architects and engineers
Product specification

Even if found to have had no or minimal responsibility for a financial loss or damage, the legal cost for a defending a claim could easily be $50,000 to $100,000 or even more.

Many businesses would not have the funds to pay these costs, let alone afford any settlement or damages to a third party.

Professional Indemnity insurance enables you to access expert legal firms to assist in defending a claim. Where you are legally liable to pay the third party's costs, they assist in settling the claim to a third party – protecting your business and your livelihood.

Here's an example:

Max is a residential builder who promotes his business as a custom home builder. The architect and engineer he engages incorrectly design the slab for a sloping block build, resulting in severe structural issues to the home.

When the homeowner pursues recovery of costs, the builder is involved in the lawsuit, incurring over $60k in legal expenses, and a small portion of the damages, which ended up being an additional $45k. Because Max had a professional indemnity policy, the Insurer covered the total $105k cost incurred, less his excess.

Professional Indemnity policies are complex and insurers all have different exclusions concerning the types of activities covered. Understanding what isn't covered is important for all businesses and it is extremely important for clients in the construction industry.

There are many exposures construction businesses face, changes in the insurance market and the insurer's view of the risk might change from one year to the next, therefore getting the right advice is key.