Example 1 – A builder with Design & Construct Professional Indemnity Insurance
A builder was contracted to provide a natural grey concrete floor in a residential dwelling. When the floor was inspected, the builders’ customer advised the finish did not meet their expectations and believed the finish would have a negative effect on the current and resale value of the house.
The customer sought compensation from the builder for their perceived financial loss. Builder did agree with their customer and the floor finish did not comply with their expectations.
The difficulty, in this case, was that the floors weren’t revealed until most of the house was completed (and couldn’t be replaced). This claim was covered under the builders Design & Construct Professional Indemnity policy.
This claim provides a great example of the difference between a construction professional’s (engineers/architects/project manager) Professional Indemnity insurance policy and a Design & Construct Professional Indemnity insurance policy. This type of claim would not be covered under a standard Professional Indemnity insurance policy, which generally excludes claims relating to the sale, manufacture, installation, construction, alteration, repair, servicing or treating of any goods.
The claim would also not be covered under a Public and Products liability policy, as there has been no bodily injury or property damage.
Example 2 – A builder with Design & Construct Professional Indemnity Insurance
The roof of a newly constructed warehouse collapsed during a storm. The builder had a Design & Construct contract for the warehouse, but had subcontracted the design for the roof to a Structural Engineer, and had built to that design.
The owner claimed damages of $10 million against the builder, who took a subrogated claim against the Structural Engineer. The builder’s Professional Indemnity insurer successfully defended the builder and paid $250,000 in defence costs under the policy.
Further to this, if the Structural Engineer had ceased trading, the builder would have been liable for the full $10 million in damages, potentially without recourse. In that case, the builder’s Professional Indemnity policy would have indemnified them.
Example 3 – A builder with NO Design & Construct Professional Indemnity Insurance
A customer engaged an architect to help with the design of their new home. The architect specified that a polyurethane coating should be put over a natural stone tile floor to protect the stone and enhance its appearance. Sometime after the builder completed the job, hairline cracks developed across the whole floor.
The architect claimed that the cracks were caused due to defective workmanship. Even though the builder refuted this, the owner began legal action against him for around $1 million.
The builder was insured by a Contract Works Insurance policy and claimed against it. Evidence revealed that the polyurethane coating on the tiles caused the cracking, and the cause was therefore a design issue.
The builder’s Contract Works policy excluded the defective floor, because the material damage section of the policy had expired on that contract. The liability section didn’t cover design faults, or remediation of products.
As a result, the builder had to fund his own defence costs of $70,000. However, if the builder had taken out Professional Indemnity cover, it would have paid his defence costs.
The builder’s only hope of recovering these costs now is to sue and recover from the architect.