pii faqs

8 Weymouth Street London W1W 5BUTelephone 020 7580 5861 Facsimile 020 7436 5269 email [email protected] www.arb.org.uk

Professional Indemnity Insurance: Frequently Asked Questions

ARB receives many queries aboutprofessional indemnity insurance. We have drafted this leaflet to helpanswer any questions you might haverelating to your PII.

Architects Registration Board

Guidance and Information

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Why is Professional Indemnity Insurance (PII) necessary? We live in a society which is increasingly compensation–minded. Anyonewho has had to defend a negligence claim will know that it can be anextremely worrying experience with potentially crippling costs.

Insurance against such eventualities is a necessary requirement ofprofessional practice, and you can and should use it as an importantmarketing tool that sets you apart from many of your non-professionalcompetitors.

Who needs PII?

Anyone who is carrying out professional work may face potential liability.Most professions have found that the risk of being sued for professionalnegligence is increasing.

Whether you run your own practice, are an employee, a part timer, mainlyretired or just giving free or low cost advice, you may still be blamed whensomething goes wrong and may end up with a claim for compensationagainst you.

Any member of the public using the professional services of an architect has the right to expect their work to be covered by PII.

Why does ARB issue Guidelines that set indemnity levels?The Architects Act 1997 gives the Board power to issue a Code laying downstandards of professional conduct and practice. The current Code specifies that architects should maintain “adequate and appropriate” PII, and theGuidelines are designed to assist practitioners by encouraging adequate andappropriate cover.

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The Board recognises that the circumstances in which individuals practice,and in which claims can arise, vary substantially. It also recognises that it maybe wrong to assume that there is necessarily a link between the level of grossfee income and the potential size of a claim.

It is important to understand, however, that it is the responsibility of aprofessional person to ensure that they have adequate and appropriatecover. This should be done by seeking expert advice from your broker, but inany event an architect is expected to hold a limit of indemnity of no less that£250,000.

Why are the indemnity limits so high for architects? Quite simply, they are not. They are in line with other professionals andmerely meet the minimum expectations of those who deal with otherconstruction professionals.

How can I decide what level of cover is ‘adequate and appropriate?’The Board recognises that the circumstances in which individuals practice,and in which claims can arise, vary substantially. Decisions on what level ofindemnity to hold should be made after giving consideration to the scale andnature of work you intend to undertake, and after discussions with bothrelevant clients and your insurance broker. The question that must beconsidered is “what is the extent of loss that might result from a mistake onany particular project?” Ultimately, it is your responsibility to ensure that youhave a level of insurance to cover yourself against such a loss.

It is important to understand that the Board would not normally consider anycover under £250,000 to be adequate and appropriate. This level was setafter consultations with insurers and others to establish realistic minimumlevels of indemnity.

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My turnover is below £10,000 per year, so why do I need £250,000 cover? Even a modest project can give rise to a significant claim. As an example, a project worth £30,000 gave rise to a potential claim of £159,000. Thearchitect, who had a fee income below £10,000 and a limit of indemnity of£100,000, might have appeared reasonably covered, but in practice thiswas shown to be woefully inadequate.

There is an added danger that even if clients agreed to a ceiling on theamount recoverable in the event of a problem, third parties are not bound bythat limit. There are also technical legal reasons why a contractual limit onliability may not be effective.

What if I am only carrying out work on my own property?Although architects who carry out architectural work on their own propertiescannot claim for loss or damage that they may suffer arising out ofshortcomings or mistakes – that is they cannot make claims againstthemselves – then they would remain liable for claims by others.

The ARB understands that architects may not be able to purchase PII tocover them against such third party claims on their own properties, socannot require such insurance to be in place. It is strongly advised, however,for architects in such situations to maintain appropriate cover for such thirdparty risks through building/public liability insurance.

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What if I am retired from practice? If you are completely retired from business and practice there is no need to maintain PII (except for run off cover – see later). However if you are stillcarrying out small or occasional projects then this is still professional workwhich needs to be covered by insurance.

I don’t charge for the small amount of advice I give in my local community. Do I still need PII?It makes no difference whether a professional person provides advice for afee, for benefits in kind, or free of charge – they still have a duty of care to theirclient. They are exposed to potential liabilities and may be sued fornegligence.

If you are providing professional advice as an architect that can be relied on,then those instructing you should understand the responsibilities you haveand should be asked to provide cover/protection on your behalf.

I am employed by a practice so surely I do not have to worry about Professional Indemnity Insurance? Wrong. Employees need to be aware that if appropriate insurance is not inplace then they could be personally responsible for losses at some time inthe future. It is therefore important for employees to satisfy themselves thatappropriate cover has been put in place.

Similarly, if you are working as a consultant, or through an agency, it is yourresponsibility to ensure that appropriate cover is in place before youundertake any work.

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Do I need cover for private work I do outside my employment?

Yes. Unless you are covered by your employer’s PII for your own private work(which is highly unlikely) you will need to buy your own insurance.

What is run-off cover? If you are retiring from practice that does not mean that you may still not get aclaim in respect of projects you have completed in past years. Whilst themajority of claims are made within a few years of practical completion, it isstill possible for a claim to go back many years, and for this reason the Boardrecommends a minimum of six years’ run off cover. If no policy is in place atthe time a claim is made, then you may face personal liability which can notonly be traumatic, but financially devastating.

You should also consider making the necessary provisions for run-off coverin the event of your death. Claims can be made against a deceased person’sestate.

What if I want to work abroad? Will I be covered?

If you want to undertake work overseas you should check the terms of yourpolicy to see whether you will be covered, and if not, arrange with yourbroker for the necessary amendments to be made. You should also consultwith your broker to determine in which country proceedings would be dealtwith should a claim arise.

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What if I have been, or will be, working on projects involving asbestos?Concerns have been raised with the Board regarding the position ofarchitects, who have in the past, or may in the future, work on projectsinvolving asbestos. These concerns arose due to the withdrawal ofinsurance for asbestos claims and the introduction of the Control ofAsbestos at Work Regulations 2002.

The Board understands that at present cover for asbestos continues to beeither limited or excluded entirely. The Board recognises and understandsthe difficulty this continues to cause architects, and the Board accepts that itcannot expect architects to have and maintain Professional IndemnityInsurance for a risk if cover is no longer available in the market.

Where cover is available the Board is aware that such cover is likely to beoffered on a limited basis. Generally speaking cover would usually be subjectto limited indemnity. It would generally be further restricted to UK work only,and would usually exclude liability for bodily injury and property damage.Architects should seek advice from their broker regarding the availability ofasbestos cover. Before accepting an assignment involving asbestos legaladvice should be obtained on possible contractual limits of liability.

Finally, architects should be aware that Professional Indemnity Insurance is aclaims made insurance which means that it is the policy in force at the time aclaim is first notified to insurers that responds, not the policy that was held atthe time the work was originally carried out and therefore any exclusion orrestriction under your policy could apply to work undertaken in previousyears.

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What are the implications regarding mould?Towards the latter part of 2002, professional indemnity insurers in the UnitedKingdom started to exclude cover for ‘toxic mould’. A number of large legalactions had been brought in the USA alleging mould-related illness and UKinsurers were concerned at the time that mould could become the next‘Asbestos’. Their reaction was to add exclusions to UK PI Policies relating to‘Mould’ – as defined in the policy wording.

Today, PI Insurers are slightly less concerned about mould claims (at least forwork outside USA / Canada) and a limited number of PI insurers forarchitects will consider providing some cover, sometimes subject tocompletion of a satisfactory questionnaire. No cover is usually provided forclaims arising from work in the USA or Canada. Some PI policies still have afull exclusion for mould claims.

This general guidance does not replace the need for specific expert advice tobe taken where appropriate nor does it lessen an architect’s responsibility fordecisions in relation to specific projects.

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These frequently asked questions should be read inconjunction with the guidance on professional indemnityinsurance. The guidance is available on our website, or we can send you a copy in the post if you ask. For furtherinformation about professional indemnity insurance, please email [email protected], or call us on 020 7580 5861

8 Weymouth Street London W1W 5BUTelephone 020 7580 5861 Facsimile 020 7436 5269 email [email protected] www.arb.org.uk

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