Professional Indemnity Insurance – market conditions for consultants

The insurance market, particularly the professional indemnity insurance (PII) market, has become increasingly contracted in the construction sector, not least following the pandemic and the Grenfell Tower disaster.

Having reviewed their profitability in the construction sector, PII insurers have either:

• pulled out of the PII market altogether; or
• if they have stayed in it, restricted the cover they offer; and/or dramatically increased their premiums.

Consultants (especially engineers and architects) are finding it particularly difficult to obtain essential PII. Approved Inspectors are finding it even more difficult; due to their role they now have a statutory obligation to have PII which complies with the criteria set by the Ministry of Housing, Communities & Local Government and in a recent development, their PII will no longer respond for projects where the appointment contains more onerous terms than the Construction Industry Council/Association of Consultant Approved Inspectors (CIC/ACAI) form.  This form includes limitations on liability which would otherwise be unacceptable to employers.

Appointments often require consultants to maintain PII for a period of 6 or 12 years. In this tightening market it is important that appointments require a consultant to notify employers if there is a change to the cover offered by the PII. For example, PII policies now often include aggregate carve outs for fire safety and cladding related claims at a lower value to the underlying policy.

We are also seeing that insurers are much more involved in appointment negotiations and it is not uncommon to receive exhaustive amendments to forms of appointment, even where a form of appointment has previously been agreed with that particular consultant. These amendments often include aggregate caps on liability on all claims arising from the appointment, net contribution clauses - meaning the consultant will only be liable for the portion of loss/damage for which they are responsible when there are two parties at fault putting employers at risk of consultant insolvency - and economic loss exclusions.

From a consultant’s perspective, consultants can no longer easily take on projects and companies are now having to reevaluate the type of work they do due to the restrictions on their cover. This in turn offers less choice of professional team to employers.

From an employer’s perspective, employers are spending more time and money negotiating consultant appointments and are having to concede to limitations on liability that they previously would have pushed back on.