Professional Indemnity for construction companies is an insurance designed to protect constructors if a customer believes their work was professionally negligent. This might include recommending the wrong materials, making incorrect measurements or providing a poor quality of advice or guidance. It may also be referred to as Design/Construct Professional Indemnity.
It’ll typically be part of a more extensive Construction insurance policy that might include Public Liability, Employers’ Liability, Plant/Equipment cover and Personal Accident/Injury coverages (to name a few). Still, it can also be purchased as a standalone policy if required – perhaps if you’ve found an excellent price or already have other coverages sorted.
Most clients will insist you hold (at an absolute minimum) Public Liability (usually £2M+ limit) and Professional Indemnity (usually £1M+ limit) however keep in mind that more expensive projects might ask for more, so if you or your business usually work on higher-value contracts.
Getting set-up (or increasing the value of an existing policy) isn’t usually too time intensive (it can typically be done in under 24hrs). Still, if your policy is part of a larger one (either Construction or All Risks) then it may take a little longer, especially if the insurer feels they need to re-evaluate the risk levels of your business. The best way to ensure you’re appropriately covered is to ask your client what their expectations are, and let them know you’re happy to be insured to a level they’re comfortable with.
Do I need Construction Professional Indemnity insurance?
If you’re working in the construction industry and providing your advice, designs or guidance, then you will almost certainly need a Professional Indemnity policy. Combined with Public Liability, it can cover for many of the most common issues construction businesses face that might lead to legal proceedings.
Examples of Professional Indemnity cover:
- You’ve designed, supplied and constructed the frame for a new build home, however upon completion your customer feels it is unsafe. They sue you to cover the costs of having the design redone and the work restarted.
- You’ve been hired to support the construction of a new apartment block. You recommend a fire alarm design that is found to be faulty, so the owners sue you to cover the costs of having a new assessment completed.
- You’ve provided designs to a customer for a new extension to their home. However, the customer feels the work is exceptionally unsatisfactory and well below the standards agreed. They sue you to cover the costs of having the work redone.
If you are at fault for something, it can quickly become expensive to compensate and cover your legal expenses. Professional Indemnity will cover both (up to the agreed limits of the coverage), so you won’t have to worry about finances if something does go wrong.
How much does PI Construction insurance cost?
PI Construction insurance can cost thousands or, in some cases, even tens of thousands of pounds for a small to medium firm. Prices can be highly variable, from one company to the next and even from one year to the next.
Without knowing your situation specifically, it’s challenging for insurers to offer online quotes for Professional Indemnity insurance. However, there are a few things you can keep in mind that will impact your end cost. The easiest way to work out the factors driving the cost of your coverage up and down is to look at the questions insurers ask when you’re trying to sign up for a policy:
- Number of employees
- Cost of salaries per annum
- Contract information (if for a specific contract/project)
- Site location
- Contract value
- Contract duration
- Annual turnover (3-5yrs of history may be requested)
- Maximum/average contract undertaken in past 12 months/3 years/5 years
- Valuations for any tools, hired-in plant, equipment, temporary buildings
Different insurers might ask for more or less information depending on what they perceive as valuable, so don’t be surprised if some ask you for slightly different things – and if you’re wondering what it looks like, take a look at this proposal form from NIG.
