What can go wrong?
It’s complicated but in general terms a liability arises where a contractor takes on the design liability for a project in order to provide their client with a ‘one-stop shop’ of construction services. The insurance risk is therefore akin to that of an architect or engineer and ranges from defective building design through to negligent specification of products and failure to supervise.
Large contractors will have a design team in-house but often ‘professional services’ will be subcontracted to another company or individual. Either way, if something goes wrong and the client makes a claim, the contractor will be first in the firing line.
Insurers only want to provide cover for professional risks, so their policy will exclude things associated with poor workmanship. Supervision is not covered unless undertaken by a fee earning division, separately from the construction work. If the professional risk is sub-contracted, insurers will often require contractors to check the sub-contractor’s professional indemnity arrangements – so they can subrogate against them if needs be. This is a key point as contractors with only ‘contingent’ liability attract much cheaper rates, so insurers expect them to stay out of trouble.
Contractors who provide no professional services themselves may still have a ‘duty to warn’ a client if they become aware of a defect – this cover is generally available by extension. They may also (inadvertently) take on limited design responsibility.
Policy limits have historically been provided on an aggregate, costs inclusive basis although Any One Claim cover is now much more frequent.
Given that much property development now occurs on brownfield sites, pollution cover can be critical and insurers approach it in different ways so seek clarification if it isn’t clear.
What are insurers looking for?
Where professional services are provided in-house, insurers will want to see evidence of your qualifications and experience and they’ll also want to know if the firm is using tried and tested methods or experimenting with cutting-edge technologies.
Other considerations include the size of contracts undertaken, the sectors in which the company works and the nature of the projects they get involved in. Insurers consider the following high risk: most civil and structural engineering projects; anything to do with water (such as flood protection, harbours & jetties, reservoirs or swimming pools); buildings where temperature control or clean air is critical; manufacturing plants and most energy projects.
The complex nature of D&C work and the huge variation in cover available means it’s absolutely vital to partner with a broker who understands the risks involved and how best they can be protected.