Design services may be undertaken in-house or sub-contracted to an external consultant. Regardless, you are liable to your client for any claims arising out of damage, loss or injury incurred as a result of a breach of professional duty.
Professional Indemnity policies are “claims made”, which requires a policy to be in place, and for you to notify your insurer within the current policy period, of any circumstances that you become aware of that may give rise to a claim.
Builders frequently enter into D&C contracts and then outsource the design elements to an architect, however many fail to recognise their ongoing exposures in relation to the outsourced design. It is a common misconception that once the design is outsourced to a third party, it is the architect that takes responsibility for any issues arising from the design.
Any entity involved in design and construction activities, such as the provision of advice, design, physical construction, erection or installation should consider purchasing a Design and Construct insurance policy.
No – the D&C policy is a Professional Indemnity insurance policy and is not designed to cover trade / blue collar errors, etc – these activities are excluded under the policy
A large commercial builder signed a D&C contract with a principal. The design component was 100 per cent outsourced to another party. Several months after the commencement of the project, it became clear that the design was faulty.
The entire design was outsourced, so the design contractor (and the design contractor’s insurance) are usually expected to respond to the claim however what if the insurer denies liability, or they don’t have the correct insurance in place, have used up the limit of their liability, or they’ve since gone into administration? The legal proceedings to recover from the design contractor could take years and even then, the full amount may never be recovered (if anything is recovered at all).
The builder must continue with the work or risk being in breach of contract. This means all the mitigation and re-design works are at the expense of the builder.
While the builder did not undertake the design themselves, they are responsible for the design under the contract, making them responsible for design faults and rectification of those faults. Where a D&C PI policy is in place, with the correct coverage, it will respond in this situation and the claim will be paid. This allows the builder to remediate the works and continue on with the project, hopefully with little interruption and conflict with their principal.