Civil Engineering Reference
In-Depth Information
warranty given by a design professional, and similarly are not prepared to cover such
a warranty from a contractor with design responsibility.
Professional indemnity policies are usually issued on a 'claims made' basis. This
means that any claim will be dealt with under the policy in force during the year in
whichtheclaimismade.Forthatreasonitisprudentforthecontractortomaintain
professional indemnity insurance long after completion of a project. Clause 6.12 of
the SBC (and of the SBC/DB) provides that such insurance should be maintained for
the period stated in the Contract Particulars. For most projects this will be a period
of 10 or 12 years.
The amount of professional indemnity insurance cover should ideally be sufficient
to cover any loss likely to result from a defect in design. Parties should, however, be
aware that this is a continuing annual obligation. Notwithstanding the usual qualifi-
cations relating to availability of cover and the terms of renewal, parties should take
care when agreeing the level of cover, bearing in mind the potentially volatile nature
of the insurance market.
It is of course possible to limit the potential liability of the contractor and indeed
clause 2.19.2 of the SBC and clause 2.17.2 of the SBC/DB permit the parties to insert
a ceiling of liability for loss of use, loss of profit or other consequential loss arising in
respectoftheliabilityoftheContractorforinadequaciesindesign.heNEC3also
provides a means under Secondary Option X18 to limit the contractor's liability for
Defects due to its design which are not listed on the Defects Certificate to the amount
stated in the Contract Data.
Although there are no express requirements in the NEC3 core clauses or in the
Insurance Table in respect of professional indemnity insurance, clause 84.1 does make
provision for the Contract Data to specify any additional insurances to be provided
by the Contractor. However, if professional indemnity insurance obligations are to be
added in this way, drafting changes may be required to clause 84.2 which suggests that
all insurances (including additional insurances stated in the Contract Data) are to be
in the joint names of the parties and to provide cover until a Defects Certificate or a
termination certificate has been issued, neither of which requirements is appropriate
for professional indemnity insurance.
Furthermore, for the reasons stated above in relation to 'fitness for purpose', there
may be doubts as to the extent to which a professional indemnity policy will cover the
Contractor's design liabilities unless Secondary Option X15 is used, i.e. limitation of
the Contractor's liability for his design to reasonable skill and care.
It is also important to understand the distinction between professional indemnity
policies which provide cover on an 'each and every claim' basis and those where cover
isintheaggregateforeachperiodofinsurance(whichmayormaynotbesubjectto
one for more reinstatements). It is more common for professional indemnity insurance
maintainedbydesignandbuildcontractorstobeonanaggregatebasis,whilesuch
insurance is usually taken out by professional consultants on an each and every claim
basis. Both types of cover will often also have lower levels of cover, usually in the
aggregate,forcertaintypesofclaim,suchasthoserelatedtopollution,asbestosor
contaminated land.
