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We're Contractors; why do we need PI Insurance?
This is a question we’re being asked more frequently than ever so we thought it could be a good idea to explore this area a little further.
Professional Indemnity Insurance is designed to cover third party financial losses arising from faulty advice, design or specification and is generally purchased by companies who provide some kind of advice or design for a fee.
In construction projects PI insurance is traditionally provided by the architect, quantity surveyor and project manager rather than the contractors, however this tradition is changing rapidly due to the increasingly complex contractual obligations imposed by large Principal Contractors and Clients.
Part of this is driven by the application of something called a Collateral Warranty, which is a supporting document to a primary contract, creating an agreement with parties outside of the original contract.
In addition Collateral Warranties can provide a third-party with contractual rights that enable them to claim for losses which may not be able to be recovered otherwise.
So in plain english, Collateral Warranties tie in the various parties to a construction contract in such a way as to create a relationship between them whereby one party can claim from the other.
We are also seeing that in a post Grenfell environment Principal Contractors and Clients are looking to pass as much Liability down the contractual chain as possible to their suppliers.
In order to cover each others’ backs the Principal Contractor and/or The Client will insist that the various parties all have insurance cover at similar levels. Which often means increasing Public Liability limits and also purchasing Professional Indemnity (PI) cover.
Insurers often look on this with a dim view particularly where the contractor doesn’t get involved in any element of design, as a result some insurers refuse to provide cover in such circumstances.
That said there are insurers and brokers who understand this subject better than others, so obtaining cover is achievable.
If you’d like to know more please get in touch.