Any person who gives advice, designs, or offers similar services in a professional capacity is seen by clients as an expert. In these times of high consumer awareness, clients will not hesitate to pursue a claim if they feel that they have received sub-standard service. Professional Indemnity policy covers legal liability towards Third Party Property Damage and Third Party Death/Bodily Injury resulting from an alleged neglect, error or omission in the professional services rendered. The Insured is an Architect who is responsible for Designing and supervising construction of a residential building. Due to a design error in the columns, the building crashes and the Insured incurs liability as below:
- Damage to the building constructed based on Insured’s Design – USD 1 Million
- Damage to the Occupant’s Property – USD 200,000
- Compensation towards Death/Bodily Injury to occupants – USD 500,000
- Legal Defense Costs – USD 50,000
The above claim is admissible under the Professional Indemnity Policy and the Insured will be compensated for the liability incurred up to the Policy Limits (less deductible). Why Professional Indemnity Policy is required Public liability policies exclude liability arising out of defective design or liability arising out of professional negligence. In construction policies, where there is an extension for ‘consequences of defective design’ coverage, the resulting damage could still be recovered from the erring party (architect/engineers). Whilst this is the scenario from the Common Law perspective, contractually, an architect/engineer may be required to provide proof of Professional Indemnity coverage taken by them. This is a common practice enforced by majority of the Principals worldwide. In some countries, Professionals may also be required by law to take and maintain Professional Indemnity Policy as a pre-requisite to perform professional services (statutory Obligation).