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A building contractor that provides design/design and construct services to their clients assumes the role of a “professional” and as such is subject to additional liabilities and responsibilities. Many building contractors in this situation are unaware of these liabilities and do not take them into consideration in their risk management plans.

Design services may be undertaken in-house or sub-contracted to an external consultant. Regardless, you are liable to your client for any claims arising out of damage, loss or injury incurred as a result of a breach of professional duty.

Professional Indemnity policies are “claims made”, which requires a policy to be in place, and for you to notify your insurer within the current policy period, of any circumstances that you become aware of that may give rise to a claim.

Does a Builder require a Design & Construct Professional Indemnity policy if the design is outsourced?

Builders frequently enter into D&C contracts and then outsource the design elements to an architect, however many fail to recognise their ongoing exposures in relation to the outsourced design.  It is a common misconception that once the design is outsourced to a third party, it is the architect that takes responsibility for any issues arising from the design.

Who should consider purchasing a Design and Construct insurance policy?

Any entity involved in design and construction activities, such as the provision of advice, design, physical construction, erection or installation should consider purchasing a Design and Construct insurance policy.

What are the sorts of financial loss claims that can be made under a D&C insurance policy?

  • failure to exercise your professional duty
  • breaching misleading and deceptive conduct provisions of consumer legislation
  • breaches of intellectual property rights
  • breach of contract
  • failure to warn

Does the Design and Construct insurance policy provide cover for Claims arising from defects or errors in any physical works of construction?

No – the D&C policy is  a Professional Indemnity insurance policy and is not designed to cover trade / blue collar errors, etc – these activities are excluded under the policy

Case Study

A large commercial builder signed a D&C contract with a principal. The design component was 100 per cent outsourced to another party. Several months after the commencement of the project, it became clear that the design was faulty.

The entire design was outsourced, so the design contractor (and the design contractor’s insurance) are usually expected to respond to the claim however what if the insurer denies liability, or they don’t have the correct insurance in place, have used up the limit of their liability, or they’ve since gone into administration? The legal proceedings to recover from the design contractor could take years and even then, the full amount may never be recovered (if anything is recovered at all).

The builder must continue with the work or risk being in breach of contract. This means all the mitigation and re-design works are at the expense of the builder.

While the builder did not undertake the design themselves, they are responsible for the design under the contract, making them responsible for design faults and rectification of those faults. Where a D&C PI policy is in place, with the correct coverage, it will respond in this situation and the claim will be paid. This allows the builder to remediate the works and continue on with the project, hopefully with little interruption and conflict with their principal.

Staff Profile

Carina Bogaard 

Account Manager NSW/ACT 

Cos_Cirocco

Cos Cirocco

National Business Manager - State Manager SA

Karen Meiklejohn

State Manager – QLD/NT

Kylie McGrath

State Manager
WA Branch

Peta_Kortum

Peta Kortum

Account Manager - VIC