We are fielding more and more calls from builders asking about Indemnity insurance, so this article will explain what it is and what it does and doesn’t cover. Hopefully this will help you decide if it’s something your business should have too.
In insurance terminology, indemnity is when one party (your insurance company) agrees to pay for the potential losses caused by another party (you), in return for the payment of a premium. Indemnity insurance aims to “protect business owners and employees when they are found to be at fault for a specific event such as a mistake”. Errors & omissions indemnity or professional indemnity insurance (they are the same thing) covers your liability for mistakes you make that cause someone else a financial cost.
Indemnity insurance is increasingly being taken by building firms for a couple of reasons:
· There is an increased willingness among the public to engage legal means if they are unhappy with some aspect of their building work and feel the builder should be responsible. This is being reinforced by the increase in legal rights and remedies available to the public following recent changes to the Building Act
· The leaky homes crisis highlighted the lack of adequate insurance for building contractors & project managers, especially compared to other building professionals such as architects, engineers and building surveyors
How is it different from Public Liability insurance?
Public liability insurance generally only covers your liability from accidentally damaging physical property. For example, breaking the neighbour’s window or scratching up a wooden floor, depending on the circumstances of each claim. But if the alleged loss is purely financial, with no property damage involved, then it is not a public liability claim and for this you need errors & omissions indemnity.
What kind of things are covered by Errors & Omissions indemnity insurance?
Your liability for mistakes made by your employees, sub-contractors or consultants on the job are covered by errors & omissions indemnity. For example, if your QS or designer made an error, or your contractors didn’t follow the plans and specifications correctly. Perhaps the project management oversight wasn’t up to scratch, resulting in poor quality work by sub-contractors. Some policies also include cover for defending LBP license complaints.
What’s not covered by Errors & Omissions indemnity insurance?
You’ll need to read the terms & conditions of your policy for the specifics, but some common exclusions are:
· if there is property damage involved then errors & omissions indemnity cover won’t apply, as this should be covered by public liability or contract works insurance
· if you’re doing property inspections/builders reports then you may need separate cover for this
· if a claim arises because a product you’ve supplied hasn’t met the manufacturer’s specification this may also be excluded, as this is the manufacturer’s responsibility not yours
Is there anything else I should know?
Indemnity insurance is a “claims made” policy, which means you need to have the policy in place continuously from before the event giving rise to the claim happened, through to when you make the claim. So if the subsequent owner of a house you worked on nine years ago makes a claim against you, you will need to have had the policy in place for that whole period.
You also need to make sure you read & understand the terms and conditions of the policy.
Indemnity insurance is a cost of doing business for building professionals such as architects, engineers and building surveyors, just in case they make a mistake. In the new world of licensed building practitioners, self-certification and 10 year liability under the Building Act, it will increasingly be required by builders too.
 Investopedia, http://www.investopedia.com/terms/i/indemnity_insurance.asp