15 November 2021
A significant challenge, and cost, has arisen in recent years with regards to achieving adequate PII cover, with the market tightening towards an aggregate cover policy and significant premium increases. Associate Director, Michael Smyth, explores this topic in the below article.
Obtaining and maintaining Professional Indemnity Insurance (PII) has been a longstanding requirement for design team members, both in the public and private sector. Increasingly, contractors and sub-contractors also have a contractual requirement to provide PII for any design responsibility that may fall within their remit. In this article, we explore the current challenges surrounding PII in Ireland, and some of the steps being taken in an effort to overcome these challenges.
In a construction context, PII covers a party’s legal liability for advice and design, and the evolving understanding of who is responsible for ‘design’ on a construction project has resulted in the requirement for the maintenance of PII policies to be wider than ever before.
A significant challenge, and cost, has arisen of late in achieving adequate PII cover, and is a major issue for all professionals, main contractors and sub-contractors. It is similarly an issue for the employer, developer, purchaser and end user, who require an adequate PII cover policy to be in place.
The PII insurance market in Ireland has hardened in recent years. Many insurers (and specialist insurers) have exited the market following consecutive years of lossmaking, the implications of the Grenfell Tower disaster, and the impact of international events such as Brexit and COVID-19, amongst others. As a result, the reduced capacity and unwillingness to write PII has caused significant premium increases.
The tightening of the PI market has also depleted the availability of the traditional ‘each and every’ claim in favour of an ‘aggregate’ cover policy. Traditionally, the insurance limit is payable in respect of each claim, whereas with an aggregate policy, the limit is only payable once during the period. The commercial reality is that cover for ‘each and every claim’ is becoming increasingly difficult to obtain, particularly at the required values.
Furthermore, added conditions, restrictions and wide-spread exclusions relating to cladding, fire safety and like items, have pushed PII to be offered at unacceptable terms and/or at unaffordable prices. These factors limit financial exposure for the insurer – however, it means that PII is not available at a commercially viable level.
The impact of this issue is being felt across existing contracts and new contracts which are in the process of being executed. Many parties are finding that the level and type of cover which they previously carried as a matter of course, is now unavailable on renewal, or available with a significant price increase.
The SCSI (Society of Chartered Surveyors Ireland) has recently concluded a tender process for a PII partner, who will work towards educating members in relation to PII and engaging with industry and other stakeholders.
The SCSI, OGP (Office of Government Procurement), the insurance industry and the state claims agency are actively engaging on this issue to see what measures may assist the industry in providing services to public sector clients.
The SCSI has made a submission to the OGP with regard to potential flexibility that may be required on public sector projects, including a detailed review of ‘Liability Caps’, which has been an industry issue for a number of years.
Given the current issues in the market, all contracting parties (be it in the private of public sector), should consider provisions that may allow appropriate flexibility. This will facilitate the required type and level of PII cover being achieved and maintained, for the benefit of all parties involved.