Let's look at why engineering contractors require professional indemnity insurance

Engineering contractors generally understand the reasons why they need to have public liability insurance, but there is often confusion around why they are often contracted to have professional indemnity insurance. Get a Quote now

Let's look at why engineering contractors require professional indemnity insurance
Professional Indemnity Insurance

Let's look at why engineering contractors require professional indemnity insurance

  • Chris Jordan-Pinder
  • 2022-11-08 09:46:38

A guide to professional indemnity [PI] insurance for engineering contractors

Engineering contractors generally understand the reasons why they need to have public liability insurance, but there is often confusion around why they are often contracted to have professional indemnity insurance. This usually crops up as part of the tender process for an engineering contract.

We have put this article together to give some insight into why professional indemnity [PI] insurance is important to the engineering industry, and to demonstrate when a claim would fall under professional indemnity insurance and not public liability insurance.

Firstly, what is Engineering Professional Indemnity [PI] Insurance?

Engineering Professional Indemnity insurance is written to protect contractors and subcontractors should allegations be made against them relating to errors in their work, incorrect or poor design or professional negligence, that results in a financial loss for their client.

The cover the policy provides to the engineering contractor includes legal defence costs to provide defence against the allegations, and any damages awarded in relation to alleged errors in the design or advice given, a project not being fit for purpose, or a contractor using incorrect materials.

What is the difference between Professional Indemnity [PI] Insurance and Public Liability [PL] Insurance?

Professional indemnity insurance kicks in and provides cover for claims made by a client for errors in your work or professional negligence and mistakes made in the work you have done for them. Claims could be made due to professional errors, defamation or libel, sub-standard work and perceived poor advice.

Professional indemnity insurance can cover the cost of legal defence, rectifying the issue, loss of income and any compensation payments that are the result of a claim.

Public liability, on the other hand, covers claims relating to injury or property damage made by a member of the general public, or a client, against your business. This includes customers, clients, suppliers, passers-by – the general public at large.

In short, the primary difference between the two policies is that public liability provides cover for risks of damage or injury, whilst professional indemnity provides cover for when you work for a fee but do not undertake physical or manual work and kicks in to provide cover for professional errors, bad advice, mistakes and professional negligence that results in a financial loss.

Why do Professional Indemnity [PI] claims come about?

Professional indemnity insurance protects your reputation and liability, as well as fulfilling your contractual requirements.

A lot of the time, PI claims are unfounded, but there are other parties in the contractual chain who are looking to share the blame around, to recover their own costs or to protect their own reputation. A large proportion of professional indemnity claims are for defence costs only and the liability is successfully defended.

It’s easy to focus on the party with overall responsibility for design when we think of engineering risks. This leaves out a wide range or risks as the types of claims that are brought against engineering contractors and sub-contractors are much broader and include errors or omissions in technical calculations, in planning and specification and for project co-ordination.

Professional indemnity insurance is designed to protect you when a claim is made. As long as you have insurance in place at the time the claim is made, the cover is retroactive (from the date specified in your policy) – this means that the cover applies for all work you have done from that date, during and after the projects, from tender and planning through to defects that arise post completion. It is important to note that a lot of insurers will charge extra to provide this retroactive cover to cover work you have done before. Our eNergy360 PI policies provide full retroactive cover back to the date of incorporation of your company (or that you started trading, if a sole trader).

The majority of PI claims related to engineering projects are discovered after the project is completed and often develop into serious legal issues. As long as your professional indemnity policy is in force, you will be covered for all past work.

What cover is provided by engineering Professional Indemnity [PI] insurance?

  • Damages, costs and any monetary awards made against you arising from any claim first made against you and reported during the period of insurance arising from any actual or alleged negligence; unintentional breach of confidentiality; unintentional breach of copyright; libel, slander or defamation; any other actual or alleged act, error or omission that results in a civil liability

  • Loss of documents

  • Compensation for court appearance

  • Discovery period

  • Data protection.

What limit of Professional Indemnity Insurance should engineering professionals consider?

Professional Indemnity [PI] offers engineering contractors a wide range of limits of cover to choose from, depending on their specific or contractual requirements.
There are a variety of ways to work out how much cover you need for any given contract or job.

Consult your client – when you are contracted to for work for a specific client, they will often state the level of cover required in the contract they have with you. You can easily select this level of cover to meet your minimum contractual requirements.
Consult your industry body – If you are a member of an industry body, they might require you to have a minimum level of professional indemnity insurance as part of your membership. It is usually a good idea to speak to the relevant membership team to find out the details.

Make your own decision – If you opt to arrange cover for all the work you undertake under a variety of different contracts it is advisable to cover the worst-case scenario for each project you undertake.

For this you will need to look at the following:

The cost of putting right a serious mistake – rectification cover is essential for the engineering industry and covers the costs incurred in remediation work or mitigating a loss that may result in a claim, including:

  • any consequential losses your client would suffer as a result of your error,

  • any damages or compensation due to your client, typically decided by the courts unless a settlement is reached,

  • any legal fees incurred by your client in pursuing you.

The Professional indemnity insurance policies offered by eNergy360 offer a range of cover limits from £100,000 t0 £2,000,000. Get a Quote now & become secured.

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