Architects
Architecture is one of the older established professions and, as such, Architects are regarded as a 'traditional' profession. The profession as a whole is regulated by the Architects Registration Board (ARB). PI insurance became mandatory for all qualified Architects in 1997. As well as dealing with qualified Architects, this section also deals with design consultants in the building industry who has qualified in other ways and by experience.
Whilst the ARB is the governing body for the profession the Royal Institute of British
Architects (RIBA) is perhaps the best known organisation representing the industry.
In order to trade as an Architect one must be registered with the ARB and it is
the ARB which lays down the rules for Architects PI (see www.arb.org.uk) and in order to be chartered one needs to
be a member of RIBA. Architects are involved in all aspects of planning, designing
and supervising the construction of buildings of all types. Their training is amongst
the longest of any profession.
What do insurers look for?
Size of practice - One of the major factors that determine insurers' rating and underwriting criteria is the size of the practice. This is mainly established in two ways, the number of partners and staff and the gross annual income of the firm.
Qualification and experience - In line with underwriting philosophy
across the professions, insurers need to satisfy themselves that an architect is
suitably qualified and/or experienced to carry out the work undertaken on behalf
of his client.
Type of work - Insurers will be particularly interested in what
type of work the architect is involved in and the split of annual income derived
from each discipline:
- Architectural design work – This is the ‘bread and
butter’ work involving the design of buildings. The risk level varies considerably
which is why insurers tend to split this category into two areas
- New build. Will tend to involve structural input and will be higher risk especially where the work relates to large complex commercial buildings or where cutting edge building techniques are used.
- Non Structural. Lower risk as remedial work will not tend to involve the building’s “skeleton. Attention should be paid to multiple unit projects such as housing where mistakes could be multiplied.
- Town planning - Nothing is being designed for construction so this tends to be Low risk. However sizeable losses can occur.
- Feasibility studies - Lowest risk of all because at the stage of feasibility no actual building work has taken place. If the project fails to materialise then the risk to insurers is very low indeed. Low risk
- Architectural consultancy - A 'catch-all' for other miscellaneous work done by Architects - if it is a large proportion of the annual fees then further explanation is most likely needed. Risk depends on what they are doing
- Interior design - Low hazard but increasing where work involves the retail sector, where contract sizes can be high and often involves a significant amount of supervisory responsibility. Interior design by its nature tends to be transitory - particularly in the retail sector where premises 're-invent' themselves regularly. Low risk but increasing in the commercial sector
- Project management - Architects may find themselves project managing with a responsibility to appoint all other consultants as their sub-contractors. This is High risk as any claim, regardless of fault, would come through the Architect whose insurers would then have to subrogate against the party at fault. It is essential that the Architect ensures that all others in the design team and the contractor maintain adequate PI.
- Project co-ordination - Where the Architect carries out a project management role but does not appoint the others (they are appointed directly by the client) this improves the risk. Medium risk.
- Surveys - Architects would rarely carry out surveys for lending purposes but are far more likely to do a condition survey as part of a job. It is unusual for a condition survey to be carried out in isolation unless the job is then aborted which would be of little risk to insurers. Low to high risk depending on type of surveys carried out
Contract sizes - There is a direct relationship between the size and complexity of the job and the exposure.
Technology - Is the firm using 'cutting edge' technology or standard, tried and tested processes?
Overseas exposure - Does the practice carry out work for overseas
clients?
Careful consideration would be paid to such work carried out for US or Canadian
firms.
Retroactive exposure - Does the practice have an exposure to claims arising from past work, whether in the current firm or a former practice?
Environmental exposure - Does the firm knowingly get involved in
the environmental field?
Asbestos exposure - Often policies exclude or severely restrict
the cover for this work. If the practice is involved in the assessment or supervision
of handling hazardous materials like asbestos then Insurers are able to provide
cover but this will normally be on a restrictive basis.
Claims experience - The claims experience is an important determining factor in the assessment of risk. This information usually reflects the type of work carried out by a practice. It also reflects the quality of the practice's work, staff, internal risk management and experience.
Download
Architects brochure.Examples of claims
Negligent design industrial new build - Design failure in respect of industrial distribution warehouse. Building incapable of housing refrigeration plant due to incorrect design of internal load bearing roof. Settled £75,000.
Negligent design commercial new build - Incorrect design of fuel tanks in respect of new petrol station development led to failure of standard industry health and safety check. Alterations cost £18,500.
Negligent design on residential new build - Architect signed practical completion certificate on a residential new build job. Dozens of snagging problems then arose which the contractors failed to resolve. Settled £5,000.
Failure to seek planning permission - Architect instructed to plan and design office development. Although planning permission requested and received from Local Authority, there was a failure to seek permission for the correct area. Settled £9,000.
Inadequate supervision - Architects instructed to produce specification and supervise the renovation works to a church roof. After contractor went 'bust', roof failed after heavy rain and it subsequently transpired that work carried out by contractor was inadequate. Claimant alleged proper supervision by Architect would have avoided problem. Settled £100,000.
Negligent site layout - Architects instructed to design a residential development comprising of ten properties. Dimensions for the site were provided by Surveyors but were incorrectly translated by Architects and the development encroached on to land owned by Local Authority. Additional costs incurred in purchasing additional land. Settled £10,000.
Negligent survey report - Architect instructed by residential property developer to carry out a pre-purchase / exchange survey on a residential property. On the basis of the Architect's report the property was purchased in part-exchange for one of their properties. A subsequent survey by prospective purchasers revealed serious cracks to structural wall. It was alleged Architect should have warned of the problem in order to trigger further expert investigations. Settled £20,000.
Failure to adequately specify - Architects instructed to design
a number of hotels. After completion of project one of the hotels suffered a fire
which resulted in major damage. During repairs it was noticed that the fire resistant
material used in the property was inadequate. It was later alleged that the Architect
failed to specify material correctly. The error meant material in all hotels had
to be replaced. Settlement £500,000.
What else you should look for?
Collateral warranties – Sometimes also called duty of care agreements are contractual agreements between parties who otherwise might not be in a contractual arrangement. In the case of an Architect it is unlikely he will have a contractual relationship with the purchaser of the building or the eventual tenant. It is possible that the building is funded by a bank or some other financial institution and again the Architect is unlikely to have a contractual relationship. A Collateral Warranty creates a contractual relationship between the Architect and these parties which reflects the responsibilities that the Architect has to his client. These agreements can also be assigned meaning that their benefits can be passed on from one funder, owner or tenant to the next. Very often they only stop when the limitation period expires and this is likely to be 12 years after the date of practical completion. So now the Architect can be pursued by parties other than his client.
PI Insurers generally take the view that they will accept claims arising from sensibly worded agreements. The British Property Federation (developers' trade association) has agreed standard templates with most construction related professional bodies (RIBA, ACE, RICS included), which most insurers will accept. Insurers regard the acceptance of contractual liability beyond that normally owed by a professional, to be beyond the intention of a PI policy, so the more unreasonable agreements could have very damaging effects on professionals, leaving them without cover.
Most PI policies address the issue of collateral warranties by clearly setting out
the limits beyond which cover will not apply. This should avoid the need to submit
each and every agreement for sanction by the insurer. Some of the more restricted
policies offer very little cover in connection with this type of agreement, not
even covering the British Property Federation agreements described above.
Of course, the 'claims made' nature of PI policies (see PI demystified brochure)
causes a difficulty here. If a contractor signs up to a collateral warranty having
reassured himself that it is within the scope of his PI cover, what if he later
chooses to (or is obliged to) change insurer? Or what if the insurer changes the
wording? For this reason, you should urge your Architect clients to sign up to sensible
agreements only. This can be very difficult in times of recession in the construction
industry when Architects could be tempted to sign up to very nearly anything to
secure work, regardless of the longer term consequences.
The Housing Grants, Construction and Regeneration Act 1996 - The biggest issue here for PI policies is the introduction of a standardised adjudication process to speed up the resolution of construction industry claims, cutting to a matter of weeks a process that has historically taken years. It is beyond the scope of this commentary to go into detail on the Act but it has had the following major effects:
- Insurers generally require notification of adjudication claims within a day or two. Notification of claims has always been an issue under PI policies but insurers have not normally taken issue with the insured over matters of a day or two unless there has been clear prejudice. With adjudication claims, there is little or no room for latitude.
- Insurers will not allow the insured to compromise any right of appeal. So, they must not enter into any contracts that allow the adjudicator to finally determine a dispute. Most policies incorporate a number of crucial clauses relating to the handling of adjudication claims. As ever, Architects must read their policy very carefully to ensure that they do not fall foul of any of the requirements, in particular with regards this Act.
Consortia - Most proposal forms have a specific question regarding
consortia. These generally occur on bigger jobs, often where a combined tender is
put together by a design and build team covering all professional and building disciplines.
Warning signs include reference to acting as lead consultant or to design and build
jobs. The question is whether or not there is an agreement whereby a separate legal
entity is created for one or more jobs, or whether there is a partnership created
between two or more of the participating firms' jobs (in which case attention needs
to be paid to how it is insured - ask HCCI for advice). There are now more and more
projects that involve 'project partnering'. In respect of this activity, there is
just one contract that is signed by all involved in a project. The intention is
that everybody communicates more, there is less repetition of work (and less error)
and less contractual ambiguity. Experience overseas has suggested that this type
of approach does indeed reduce the number of problems. However, care must be taken
to ensure that this kind of agreement is not drafted in such a way as to inadvertently
create a form of single project partnership, or to expose anybody to liabilities
that rightly belong elsewhere.
Wordings
As mentioned earlier the ARB lays down the rules for Architects PI. Wordings are required to be written on a 'civil liability' basis (covering all civil liability, not just negligence). If the Insured is unregistered, unqualified, or qualified only to a limited extent, more basic wordings can be offered.
The usual cover
Usually the limit of indemnity will be "any one claim" with legal costs in addition. The excess will not normally apply to insurers' costs and expenses. When on a civil liability basis, unless specifically excluded (which is unusual) cover would include negligence, liability for dishonesty, liability for lost documents, libel and slander and breach of warranty of authority.
Minimum limits
£250,000 where fees are less than £100,000 in the past financial year.
£500,000 where fees are greater than £100,000 but less than £200,000.
£1,000,000 for all practices with fees of greater than £200,000
It should be stressed that these are minimums and many practices buy much more cover.
Excesses are not defined by the ARB other than to say they must be affordable.
Run-off cover if the practice ceases, partners must ensure that they purchase run-off
cover for at least six years. The limit of indemnity must be maintained at the highest
level in the preceding three years to the cessation of the practice.
The usual exclusions
Civil liability policies demand careful attention to exclusions so that non-PI exposures are not inadvertently covered. Typically, policies will exclude:
- Employers and public liability
- Punitive or exemplary damages
- North American and Canadian jurisdiction
- Liability to other insureds
- Nuclear risks
- Claims and circumstances known at inception of the cover
- Acting as contractor
- Onerous collateral warranties
The usual extensions
- Loss of documents
- Collateral warranties
- Pollution and seepage
- Asbestos
- Occasionally, some insurers will offer cover for the litigation costs of recovering unpaid fee accounts.
