With design and construct contracts becoming increasingly common in the building industry, it’s important to understand how this can expose your business to potential losses should you not have the right insurance cover in place.

Historically, professional indemnity (PI) insurance was only considered by engineers, architects, or designers and the like. When entering into design and construct contracts, you legally assume the liability arising out of injury or loss incurred as a result of a breach of professional duty, even if you’ve outsourced this work to an external company.

What is professional indemnity insurance?

Professional indemnity (PI) insurance is designed for professionals who provide advice or services to their customers. It protects your business against legal costs and claims for damages to third parties which may arise out of an act, omission or breach of professional duty in the course of conducting your business.

Examples of when professional indemnity claims might arise:

• A negligently designed slab cracks and needs to be repaired/rectified

• A balcony collapses due to faulty design

• A building is constructed per plans, but does not comply with building codes/local laws, resulting in rectification works in order to comply.
Why you need professional indemnity insurance.

Construction industry professionals such as contractors and builders who provide design or other professional services in addition to, or as part of their construction activities for clients (for example when entering into design and construct contracts) assume the additional responsibilities and liabilities of a design professional.

Whether or not you provide these professional services in-house or engage an external consultant you assume liability to your clients or other parties for claims arising out of injury or loss incurred as a result of a breach of professional duty in the provision of these professional services.

What are you being covered for?

Key exposures are design failure, inadequate/incorrect advice, design, or specification, inadequate supervision in project management, inappropriate/incorrect certification, and poor work documentation

Who can claim against you?

PI claims can be made against you by clients, regulatory authorities, professional bodies and associations, as well as other third parties to whom you owe a duty of care (including communities). PI insurance protects you against a number of allegations such as claims for:

• Negligence–if you fail to exercise the standard of care for your profession/occupation
• Libel and slander (also known as defamation)
• Infringement of intellectual property rights, including breach of copyright, patents and trade secrets
• Breach of legislation such as the Competition and Consumer Act 2010 (formerly the Trade Practices Act) for claims alleging misleading and deceptive conduct.

MBA Insurance Services (MBAIS) can access competitive terms through specialist underwriters to offer MBA members a professional indemnity insurance policy tailored for builders. Contact MBAIS on (03) 9411 4555 and get the right advice on your professional indemnity requirements.