Project based insurance can take a number of routes that are determined by the project’s nature, complexity and requirements of the parties involved.
Professional services agreements for UK construction projects usually require Professional Indemnity Insurance (PII) to be maintained for either 6 or 12 years after the issue of the Final Certiﬁcate.
PII is usually placed on an annually renewable basis however project insurance through some insurers can run for longer periods (often with an expectation of the design period being included) and could be broken into, for example, policies renewable every 5 years or so.
Project Time Scale Example
Design: 12 months
Construction: 12 months
Defects Liability: 12 months
Subsequent Liability Period: 12 years
Total: 15 years
A project policy of this nature could be achieved by 3 ﬁve year policy periods, or one of 10 years and a second of 5 years.
Project Insurance types:
Consultant based insurance
This could be a policy taken out on a standalone basis or as a supplementary policy to the consultants annual policy. A standalone policy can include the activities of the contractor and/or other consultants involved which allows the costs to be spread.
Owner controlled insurance – single project
For complex infrastructure projects, particularly with large numbers of consultants involved, the client may choose to take out insurance that can cover all the professionals involved.
Hybrid Position - OPPI
A hybrid position could be achieved with both the consultant and owner purchasing insurance. The consultant’s cover is the primary insurance with the owner purchasing additional cover.
A complication is often that the consultant whose policy this supplements is often not aware a supplement policy is in force and also is reliant on the consultant maintaining the primary which is out of the control of the client.
Latent defect insurance
This cover is limited to defects in the structure of the building withextensions available for mechanical and electrical services, and other buildingcomponents. It provides no fault cover to the developer and usually runs for 6, 10 or 12 years from the date of practical completion.
The policy can be extended to waive the rights of subrogation against the consultant team but not the default period.
This cover can speed up resolution for the client, even if subrogation rights are retained by the insurer. Where subrogation rights are retained , it is the insurer rather than the client which then spends time and money pursuing the claim.
Single Project Insurance Policy Conditions
It is important to note that there are signiﬁcant diﬀerences between the policy conditions in single project insurance and PII policies. Single project policies are generally underwritten on an aggregate basis, with the limit of indemnity and policy excess being inclusive of defence costs, rather than the each and every claim basis used in PII policies.
As claims are made, the available cover is therefore eroded by both the defence costs and any settlement payments.The available cover may be eroded by claims against other parties indemniﬁed under the policy, so that if the architect gets a subsequent claim insuﬃcient of the indemnity is left to meet it.
The policy wording for a single project insurance policy will be based on a negligence wording rather than civil or legal liability wording.
In order to comply with the Architects Registration Board (ARB) guidance on PII, architects need to retain a separate PII policy in addition to any single project insurance provision.
The exception to this is the annual insurance purchased by the consultant as to ‘top up’ their normal limit of indemnity, here the limit will usually apply to each and every claim, and follow the terms and conditions of the underlying policy.
Consortia, Joint Ventures, Collaborative Working
Project insurance can be a valuable option in situations such as:
- Joint ventures or consortia
- Large value and high risk projects
- Overseas projects, particularly in those parts of the world where project insurance is more common.
Another option particularly if 2 or more smaller architects practices were to work together on one large project would be for them to have insurance for their respective practices separately and then one top-up policy as an excess layer above that speciﬁc to the project in question.
Assume there are 2 practices both buy £1m for all work and they have joint and several liability on a project they are collaborating on that needs £5m. In theory the ﬁrst £2m could be provided by the two architects own policies and the additional £3m to give the overall £5m be purchased on a project basis naming both practices as insured’s and only being called upon when both architects own policies have paid out their full £1m each.
Project insurance is available with a number of options/alternative procurement routes and for a range of periods.
With the periods available in the insurance market currently, there often remains a need to renew even the longest stand-alone project policies to provide cover for the full design, construction and post-construction contractual liability period.
Reform of the law is potentially the most likely route to change this position and bring liability periods into line with the insurance market, if there was a ﬁxed period for contractual liability of say 6 years then the entire duration of most projects could be covered by a 10 year project policy.
The single project market ﬂuctuates on a regular basis and for a full up to date position please do not hesitate to contact us to discuss your project speciﬁc requirements.