What is Professional Indemnity?
Anyone who gives advice or services to others by profession might be regarded as a “professional”. The term normally refers to person whose occupation demands extensive skills, experience and knowledge of a certain area. Professionals provide advice which is relied upon by others (the clients) and that’s why the advice and services shall reach an appropriate level of care and skill which is expected of that profession under similar circumstances. If there is a failure to reach that level, the professional in question can be held liable for any damage or loss it has caused to others. The cause of the damage or loss can be an incorrect piece of advice or failure to provide a service.
Different types of professionals include accountants, lawyers, architects, engineers, surveyors, real estate brokers, stockbrokers, designers, IT contractors and consultants. Naturally different occupations contain their own professional risks and it is neither appropriate nor practical to handle them all in the same context. In this article the focus is on engineers and architects professional indemnity.
Architects and Engineers as liable examples
Even among architects and engineers there are several types of professionals and therefore also various types of professional risks. Architects and engineers can specialize for example in energy field, real estate techniques, mechanical engineering or hydraulic engineering. Various risks can then result in different types of damages and losses. For instance a wrongful advice by an architect in a building project can lead to a building failure, which causes damage to the client. In addition a third party (user of the building) can suffer a bodily injury because of the faulty design.
Clients’ expectations of quality of service and advice are high, which may result in improvement of service but also in an increasing number of claims for Professional Indemnity.
How does Professional Indemnity Insurance help?
Professional Indemnity insurance is a special coverage, and it is normally not provided under General Liability insurance. Architects or engineers without Professional Indemnity insurance coverage put their business and assets at risk. Generally an employed professional is covered by the employer's Professional Indemnity insurance.
Professional Indemnity insurance designed to an architect/ engineering company protects the company’s assets against damages indemnified by a court or resulting from a negotiated settlement. The insurance also covers the costs and expenses of defending the claims.
In some, rare, situations the architect/engineering company may even be sued by a client who is merely dissatisfied, but has no valid claim, leading to substantial legal costs and time away from contracts. Professional Indemnity insurance covers also defence and investigations costs of such claims.
Clients are increasingly asking to see proof of Professional indemnity insurance before awarding the architect/engineer their contract. When negotiating a new contract with a client the architect/ engineering company should check with their insurance company the adequacy of the company’s Professional indemnity insurance.
If P&C’s new Professional Indemnity insurance
In If P&C a Nordic project on Professional Indemnity insurance for architects and associated professionals has started in autumn 2009. The aim is to design an insurance product which provides the best coverage for architects, engineers and other such professionals. Especially important is that the new Professional Indemnity product specifically meets the needs of large, international architect/ engineering companies. The project shall deliver the finished product in early 2010.