From geotechnical to structural engineering, the scope of a Civil Engineers’ work can vary widely depending their area of specialisation.
What Civil Engineers do have in common however, is that their work involves the design and construction of structures typically used by the general public. While incredibly valuable to society, the nature of this design work means that without the right insurance policies, Civil Engineers face substantial financial and legal risk exposures should something go wrong.
Professional Indemnity Insurance is essential in today’s litigious business environment, and forms an important part of any business risk management strategy. It is designed to protect the professional person or firm from damages and legal costs as a result of an act, error or omission in their professional capacity.
For many engineering consultants, PI can be one of their highest operating costs, so it may seem tempting to try to cut costs by limiting your amount of cover. Engineers who try to reduce premiums by either limiting their scope of cover or not holding PI cover at all, are dabbling in a false economy.
Average project values have gone up by 22% in the last three years and the fee amount by as much as 50%. This demonstrates a significant increase in an engineer’s risk profile and Professional Indemnity cover limits need to reflect this to avoid serious exposures.
A claimant’s loss may be material, financial or physical. Professional Indemnity Insurance is designed to cover the costs and expenses of defending a legal claim, as well as any damages payable. It is important to consider that the costs of defending a negligence allegation can be huge. A Professional Indemnity Insurance policy can also pay legal costs necessary to defend a spurious claim.
What is considered a breach of duty?
For Civil Engineers, a breach of duty could include;
- A design fault
- A design omission
- Negligent advice
- Contractual breaches
- Failure to advise
Any of the above could manifest as a claim(s) such as:
- Time delay in project completion
- Property damage / personal injury
- Loss of property value
It is important to note that even if a claim fails in court, and there is no claim payment made for the financial loss suffered, your Professional Indemnity Insurance policy still pays the legal costs incurred to defend the claim (within the applicable policy limit).
In addition, it is important to remember that as a Civil Engineer, you may also assume the vicarious liability of any contractors you engage to carry out works on your behalf, and that any breach on their part may see you joined in legal action. In such cases, you would rely on your Professional Indemnity policy to defend you, and it is important to check your policy covers you in these circumstances.
How much Professional Indemnity cover is enough?
Determining the appropriate Professional Indemnity Insurance (PI) limit is not a straight forward calculation. There are several factors that should be considered when setting a limit that is right for your business:
- Statutory requirements
- Contractual requirements
- Fee Income
The selection of the most appropriate limit should be driven by your desire to protect your business and personal assets. Many firms simply purchase the minimum (PI) limit possible in order to satisfy their statutory or contractual obligations. Utilising this approach may leave businesses dangerously underinsured, and is not something we ever recommend. Come claim time, when the financial and legal implications of underinsurance manifest into a harsh reality, it will be too late to make any increases or changes to the level of insurance.
For more information regarding breaches of professional duty, or if you have a query regarding Professional Indemnity Insurance, please contact Whitbread’s team of PI insurance specialists on 1300 424 627 or info@whitbread.com.au
This article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228 Licence Number 229092 trading as Whitbread Insurance Brokers for further information or refer to our website.
