Consulting Engineers

Engineering is the practical application of science to commerce and industry, with Engineers putting theory into practice.

There are many variations of engineering disciplines like: chemical, structural, civil, mechanical, electrical, electronic, structural, soil and geotechnical. Each has its own institute or trade body.

The work performed by an engineer involves the knowledge of the mathematical and the natural sciences gained by study, experience and practice which are applied with skill and creativity to develop ways to utilize the materials and forces of nature.

Engineering encompasses any type of activity which aims at either solving a problem or completing a task related to the definition, design and specification of a product.

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 / principals 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 engineer 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 engineer is involved in and the split of annual income derived from each discipline:

• Civil engineering - The oldest branch of engineering. Civil Engineers are involved in all aspects of the design and supervision of the construction of roads, drainage, airports, tunnels, bridges, water supply and sewage systems. They employ the latest concepts in computer-aided design (CAD), construction project scheduling and cost control.


Civil engineers are problem solvers, meeting the challenges of pollution, the deteriorating infrastructure, traffic congestion, energy needs, floods, earthquakes, urban redevelopment and community planning. Each project is custom designed. Qualifications and relevant experience are essential. Medium to high risk


• Structural engineering - Structural engineering is the science and art of designing and making buildings, bridges and frameworks of structures so that they can safely resist the forces to which they may be subjected. Medium to high risk
• Soil & foundation work - The potential consequential loss has produced some of the largest paid claims in this class. By definition things tend to be built above the work done by the soil and foundation engineer, therefore, if this work is wrong the entire project may be damaged. High risk
• Mechanical - This is an engineering discipline that involves mechanical design, energy conversion, fuel and combustion technologies, heat transfer, materials, noise control and acoustics, manufacturing processes, rail transportation, automatic control, product safety and reliability, solar energy, and technological impacts on society. They study the behaviour of materials when forces are applied to them, such as the motion of solids, liquids, and gases, and the heating and cooling of objects and machines. Using these basic building blocks, engineers design space vehicles, computers, power plants, intelligence machines and robots, automobiles, trains, airplanes, furnaces, and air conditioners.


Mechanical engineers work on jet engine design, submarines, hot air balloons, textiles and new materials, medical and hospital equipment, refrigerators and other home appliances. Anything that is mechanical or must interact with another machine or a human being is within the broad scope of the mechanical engineer. The work of mechanical engineers varies by industry and function. Large numbers of mechanical engineers do research, test, and design work while others work in maintenance, technical sales, and production operations. High technology companies seek mechanical engineering graduates for product design applications such as; plastic enclosures, thermal analysis, and electro-mechanical. Low risk to high risk depending on activities undertaken
• Electrical - Electrical engineers design new products, write performance requirements, and develop maintenance schedules. The usual functions in electrical engineering include research and development, planning, designing, construction, operating, and maintaining a variety of electrical apparatus and systems. They also test equipment, solve operating problems, and estimate the time and cost of projects. Low to medium risk
• HVAC (heating, ventilation and air-conditioning) - Usually lower contract values. However specialists undertaking work in temperature sensitive areas such as computer rooms, operating theatres and food storage units may be charged higher rates. Medium risk.
• Survey or valuation work - Needs specialist qualifications. Details of average and largest values needed. Engineers 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 depending on the type of survey conducted.

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? Specialist environmental firms need careful consideration.

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 usually 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.

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Examples of claims

Civil works to embankment - Collapsed due to unstable sub-surface conditions not being detected by Geotechnical engineer. Settled £500,000

Design of highways and service roads on £2m superstore project - Failure to locate previous pilings in the area and insufficient access allowed for articulated vehicles. £80,000 remedial costs.

Design of heating system in factory - refurbishment proved inadequate following miscalculations. Extra units required costing £29k.

Breaches of building regulations - against the engineer and eight other parties on the contract. A scattergun approach used by solicitors which incurred significant costs even though claim eventually successfully defended.

Engineer provided wrong specification - for electricity supply to site contractors Alterations and temporary generator required £28,000.

Specification and supply - of 'load cells' within a definite accuracy for testing purposes Cells found to be under performing and eventually rejected. Cost £42,000.

Refurbishment of noise test facility - contract terminated citing delays due to design inadequacies requiring complete re-fabrication to comply with Pressure Equipment Regulations claiming £1,500,000.

The main professional bodies:

Institution of Engineering and Technology (IET) launched in the spring of 2006 represents the public, professional and educational interests of over 140,000 electrical, electronic and manufacturing engineers worldwide.

Institution of Civil Engineers (ICE). With a 70,000 - 80,000 membership ICE seeks to advance the knowledge, practice and business of civil engineering, to promote the breadth and value of the civil engineer's global contribution to sustainable, economic growth, ethical standards and to include in membership all those involved in the profession.

Institution of Mechanical Engineers (IME) is the UK's qualifying body for mechanical engineers. The organisation represents around 82,000 engineers worldwide and has a specific Automobile Division with 18,000 members and 11 UK regional centres.

Society of Automotive Engineers (SAE) provides a one-stop resource for technical information and expertise used in designing, building, maintaining, and operating self-propelled vehicles for use on land or sea, in air or space. SAE has a membership network of nearly 90,000 engineers, business executives, educators, and students from more than 97 countries who share information and exchange ideas for advancing the engineering of mobility systems.

Chartered Institution of Building Services Engineers. Represents about 17,000 engineers involved in the heating, ventilation and air conditioning sectors.

There is no requirement made by these professional bodies for their members to hold or maintain professional indemnity insurance cover at any level. However, the need for such cover is obvious and most professional engineers recognise this.

In addition, most engineers find that they are required to hold and maintain cover to comply with contractual requirements such as collateral warranty agreements they are being asked to enter into as a condition of being awarded new contracts.

What should you look for?

Some Insurers find engineers to be an attractive class of business. As engineers are not subject to mandatory PI rules, insurers often offer varied cover, particularly regarding pollution or collateral warranties. Brokers have to be alert to the fact that cover may be different from wording to wording and from insurer to insurer.

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 various institutions representing the different disciplines do not lay down rules for PI cover. Therefore, although the vast majority of engineers will carry cover it is common for the wordings to vary significantly from insurer to insurer. Wordings can be written on a 'civil liability' basis (covering all civil liability, not just negligence) or on a negligence of breach of duty basis. 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. If on a civil liability basis, unless specifically excluded, cover would include negligence, liability for dishonesty, liability for lost documents, libel and slander and breach of warranty of authority.

The usual exclusions

• 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

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