Professional Indemnity Insurance

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Professional Indemnity Insurance Collateral
WarrantiesA difficult relationship?

• Helen McQuillen
• Construction Division
• 9th September 2008

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Insuring Clauses
Typical Insuring Clause for a Contractor/Sub-Contr
actor The Insured is indemnified for claims made
against them, for which they are legally liable
to pay damages arising out of the ordinary course
of professional business as a consequence of any
negligent act, error or omission of the Insured.
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Collateral Warranties Extension

• The Insured is indemnified for claims first made
  against them, which the Insured is legally liable
  to pay arising from entering into any collateral
  warranty, duty of care agreement or similar
  agreement, provided that in doing so, the Insured
  does not make itself liable
• to provide a level of service or produce a result
  beyond the scope of any duty that would otherwise
  be implied by common law or statute
• to any greater extent or for any longer period
  than is the case under the agreement with whom
  the Insured originally contracted to perform the
  same work
• under any financial guarantee, for any
  contractual penalty or for liquidated damages

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Problem Clauses 1. Importing Contract Terms
Conditions
The Contractor warrants that he has performed
and will perform his obligations in respect of
the Contract Works in accordance with the
Contract. Save to the extent that the
Contractors obligations under the Contract could
be construed as express guarantees or warranties
for fitness for purpose, those obligations shall
for the purpose of this deed be deemed to be
subject to the exercise of reasonable skill and
care.
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2. Duty of Care Undertakings

• It has exercised and will continue to exercise
  all reasonable skill, care and diligence to be
  expected of a professional qualified and
  competent designer experienced in designing work
  of a similar scope, nature, complexity and size
  to the Contract Works.
• Usual Qualifications
• Delete the word diligence
• Amend the latter half of this clause so that it
  reads to be expected of a contractor experienced
  in designing work of a similar scope and nature
  to the Contract Works

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3. Express Warranties or Guarantees
The Contractor warrants and covenants to the
Beneficiary that it has not specified or
authorised for use or use in or in connection
with the development any goods, materials,
substances or products which are identified in
the BRE Digest as being deleterious or hazardous
to health and/or safety or the durability of the
Contract Works in the particular circumstances in
which they are used. Qualification The
Contractor warrants and covenants to the
Beneficiary to exercise reasonable skill and care
to see that it has not etc
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3. Express Warranties or Guarantees continued
The Contractor covenants and warrants to the
Beneficiary that the Contract Works have been and
will be carried out in a good workmanlike and
substantial manner and in all respects in
accordance with the Contract. The Contractor
covenants and warrants to the Beneficiary that
the Contract Works when completed will comply
with any performance specification or requirement
referred to in the Building Contract.
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3. Express Warranties or Guarantees continued
The Contract Works, insofar as they have been or
will be designed by or on behalf of the
Contractor will, when completed, comply with and
satisfy all relevant statutory requirements, and
any relevant performance specification or
requirement included or referred to in the
Contract. Qualification It has exercised and
will continue to exercise reasonable skill and
care to see that etc
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4. Insurance Clauses
The Contractor hereby covenants with the
Beneficiary that it has effected professional
indemnity insurance cover with a reputable
insurance company with a limit of indemnity of
not less than 5,000,000 for any one occurrence
or series of occurrences arising out of any one
event against the Contractor in relation to the
Works (to the extent that such insurance is
generally available in the market at reasonable
commercial rates) until the expiry of twelve
years following practical completion of the
Building Contract to cover its liabilities and
obligations which may accrue in connection with
the Works.
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• Insurance Clauses - continued

• Qualifications
• reputable insurance company this is a very
  subjective term and should be replaced with
  insurers licensed to conduct business in the EU
• Any one occurrence or series of occurrences
  arising out of any one event should be replaced
  with in the aggregate or any one claim to
  reflect the terminology used in professional
  indemnity policies.
• to cover its liabilities and obligations which
  may accrue in connection with the works should
  be deleted. Why?

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4. Insurance Clauses - continued

• Clients are advised never to give any contractual
  undertakings as to the scope of cover available
  under their professional indemnity policies
• As this presentation demonstrates not all
  liabilities that a Contractor may acquire by
  virtue of a contract or collateral warranty are
  covered by their professional indemnity policy.
• A warranty is valid for 12 years from the date of
  practical completion whereas a professional
  indemnity policy is an annual contract, the terms
  and conditions of which can vary over time.

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5. Greater or Longer Lasting Rights
Nothing in the Contract Agreement between the
Contractor and the Employer shall operate to
exclude or limit his liability for a breach of
the warranties set out herein or relieve the
Contractor of his obligations and
responsibilities to the Employer. Qualification P
rovided the Contractor owes no liability
hereunder which is greater or of longer duration
than it owes to the Employer under the Contract
Agreement.
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Professional Indemnity Insurance Collateral
WarrantiesA difficult relationship?

• Helen McQuillen
• Construction Division
• 9th September 2008