Jardine Lloyd Thompson Ltd

1
Jardine Lloyd Thompson Ltd

• Construction and Professional Indemnity Insurance
• Understanding The Issues
• Andrew Harrison-Sleap
• Phone [phone]
• E-mail andrew_harrison-sleap_at_jltgroup.com
• 17 April 2008

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Agenda

• What Does PI Cover?
• Drivers For Purchasing PI
• PI Coverage Strategies
• Links with Other Policies
• Claims Examples
• Factors Affecting PI Premiums
• PI Contractual Considerations

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What Does PI Cover?

• Indemnity for claims made during the period of
  insurance as a consequence of professional acts,
  errors or omissions
• First party costs incurred prior to handover to
  mitigate matters that would have otherwise given
  rise to a claim
• Includes coverage for liabilities due to a
  sub-contractors professional activities
• Defence costs

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Project PI Time Line
Only Professional Activities conducted after the
Retroactive Date and before the Discovery Period
are covered
Run off / Discovery Period
Design Construct
Feasibility / Front End Design
Defects Liability
Policy Start Date 1/05
Retroactive Date 1/04
Practical Completion 1/08
Final Completion 1/09
Policy End Date 1/15
Note Policy will only cover claims made during
the policy period (including Discovery Period).
Maximum Policy Period 10 years
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Who are Professionals?

• University qualification
• Industry bodies (Association of engineers)
• Examples Architects, Engineers, Quantity
  Surveyors, Surveyors, Project Managers
• Not included Workmanship, Manual Labour

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Covered Contractor Activities

• Feasibility studies
• Front end designs
• Detailed designs
• Technical information calculation
• Geotechnical studies
• Project management
• Surveying (Quantity and Land)
• Procurement management

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Covered Liabilities

• Rectification costs (including first party prior
  to handover)
• Consequential losses (Profits / Revenue/LDs)
• Third party bodily injury and property damage
  (Only consultants not contractors)

8
Drivers For Purchasing PI

• Client requirements
• Financiers requirements
• Balance sheet protection
• Part of good corporate governance (risk
  management)

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Types of Cover

• Annual policy covering all claims made for all
  projects of the Insured
• Single project policy (Multi year 10 years max)
• Single project annual

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Third Party Liability Insurance

• Liabilities for
• Third party property damage
• Third party bodily injury
• Obstruction, loss of amenities, trespass,
  nuisance, interference, denial of access or any
  like cause
• Occurrence based policy
• Period Works and Defects Liability
• Completed operations coverage

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Links With PI Third Party Liability

• Third party liability covers liability for third
  party property damage and bodily injury only
• Excludes professional services coverage for
  consultants (fee only work)
• Only covers professional risks of contracting
  activities
• Does not cover defective works

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CAR Insurance

• Insures physical loss or damage to works
• First party policy (not a liability policy)
• Period Works and Maintenance
• Visits coverage
• Limited/Extended maintenance (On site only)
• Full guarantee maintenance

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CAR Insurance Defects Coverage

• DE5 Covers all damages except betterment of
  defective part
• DE4 Excludes defective component part
• DE3 Excludes defective property
• DE2 Excludes defective property and that which
  relies upon it for support
• DE1 Total exclusion for defective design, plan,
  specification, materials or workmanship

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Links With PI CAR

• CAR covers defects but only where there is
  physical damage to the works
• CAR only provides coverage during the
  construction and defects liability period (must
  have guaranteed maintenance cover)
• CAR does not cover consequential losses (LDs)

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PI Claims

• Design and Build Shopping Centre Car park
• Subbed DB to third party contractor
• ECV GBP 6m
• Defective design of expansion joints
• Cracking of car park
• Demolition and Rebuild
• Consequential Loss (Loss of trade)
• Subcontractor Capped Liability

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CAR Claim Example 1

• A building has a structural defect in one wall
  which causes an entire building to collapse
• Covered by CAR during construction and
  maintenance period
• Not covered if damage after maintenance period.
  Covered by PI if the Insured is liable
• Consequential losses not covered. Covered by PI
  if the Insured is liable

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CAR Claim Example 2

• A building has a structural defect in a wall
  which causes damage in that wall only. The rest
  of the building has structural defects but theses
  other parts of the structure are not damaged
• Damaged wall covered by CAR during construction
  and maintenance period
• Not covered if damage after maintenance period.
  Covered by PI if the Insured is liable.
• Rectification of other structural defects (not
  damaged) not covered. Covered by PI if the
  Insured is liable
• Consequential losses not covered. Covered by PI
  if the Insured is liable

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Factors Affecting PI Premium

• Relationship with underwriter
• Claims record
• Type of work
• Type of project (Construction, EPC / DB, FEED)
• Contract value / Fees
• Territory
• Experience
• Risk Management
• Programme Structure

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Contractual PI Insurance Requirements

• Requirement to maintain coverage (12 years)
• Available at commercially acceptable terms
• Provide certificates of insurance / to whom it
  may concern letters Not policy
• Limits of liability (GBP 10m aggregate)
• Not any one claim coverage. Agg limit
• Principal not insured
• Annual coverage preferable

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• Thank you!
• Questions?