Professional Indemnity Insurance For Architects 2nd Floor John Stow House 18 Bevis Marks London EC3A 7JB Tel: +44 (0) 20 7623 4957 Fax: +44 (0) 20 7623 4958 Kerry London Ltd, Professional Risks, 2nd Floor, John Stow House, 18 Bevis Marks, London EC3A 7JB ______________________________________________________________________________________________________ Professional Indemnity Proposal Form for Architects This Proposal must be completed in ink by a Director/Partner/Principal/Identified Officer of the Firm. All questions must be answered. If not, no quotation will be given. The completion and signature of this proposal does not bind the Proposer or insurers to complete a Contract of Insurance. If there is insufficient space to answer questions, please use an additional sheet and attach it to this form. Please attach any brochures detailing your Firm’s activities. 1 Title of Practice/Firm (including any former Practice(s)/Firm(s) for which cover is required) 2 Address(es) of Firm(s) – all addresses must be shown together with the Director /Partner/Principal responsible for the work at each office Tel No: Fax No: E-Mail: 3 (a) Date of commencement of current practice/firm (b) Date of commencement & cessation of former practice(s)/firm(s) (c) Reasons for cessation of former practice(s)/firm(s) 4 Profession(s)/Business(es) of practice/firm -1- 5 Please provide Names in full of all Qualifications and dates Job Title and length of time as Directors/Principals/Partners gained such Note: Please supply a full Curriculum Vitae in respect of any Director/Principal/Partner who does not hold relevant Institute and/or academic qualifications 6 Is coverage required in respect of past work for any Director YES/NO /Partner/Principal, who has left, retired or died? If YES, please give the following details: How long has the Principal been in Full Name Qualifications this Practice? 7 Please provide the total number of: (a) Directors/Partners/Principals (b) Qualified Staff (c) Draughtsmen (d) Trained Staff (e) Typists/Office Staff (f) Others 8 Has this Practice previously been insured for Professional Indemnity? (Note: if this YES/NO is a renewal through Kerry London Ltd there is no need for you to answer this question) If YES, please state (a) Name of Insurers (b) Indemnity Limit Excess of £… each and every claim (c) Date of expiry of coverage 9 Has any Insurer ever: (a) Declined proposal or renewal for this Practice or any YES/NO Partner/Principal/Director? (b) Required an increase in premium or imposed special terms? YES/NO (c) Cancelled an Insurance? YES/NO If YES, please give full details -2- 10 Please list the five largest jobs performed by your firm over the last five years, giving details as specified below Fees Job Performed Brief Description Building Value Received 11 In the case of Overseas Contracts, please list Local/UK Country Brief Description of contract Size of contract Jurisdiction 12 Please provide the following details of each contract carried out under seal during the past twelve years Gross Starting Date of Total Contract Completion Nature of Contract Fees Construction Value Date Received -3- 13 Please give the following: United Kingdom Contracts Overseas Contracts (a) Total Building Values Certified during the past 12 months (b) Gross Fees received in the past 12 months from the following work: (i) Architectural (ii) Town Planning (iii) Quantity Surveying (iv) Structural Survey or Inspection Reports (v) Valuations Any work other than listed (vi) above Total given must be gross fees for the entire Practice (£) 14 (a) Please give gross fees received during the past five years Gross Fees Received Year (£) (b) Please give estimated fees for the coming 12 months (£) -4- Division of Architectural work for the firm Design and Reports 15 Please indicate the approximate percentage of the total architectural fees the firm derives from work where the main contract of interest is: Approximate % (a) Feasibility studies, reports, surveys etc, where the applicant is not involved in actual design work (b) Housing Schemes (2 – 3 floors) (c) High Rise Buildings (d) Schools, Hospitals & Municipal Buildings (e) Industrialised Systems Buildings (e.g. Office Blocks, Factories) (f) Other work including any specialist activities not shown above (please specify) Supervision of Construction Approximate % (a) Proportion of work where firm both designs and supervises the actual construction (b) Proportion of work where firm provides technical supervision of construction for the design made by other firms (c) Proportion of work where the firm provides design services, but no supervision of construction 16 Is this Practice or any Director/Partner/Principal connected or YES/NO associated (financially or otherwise) with any other Practice, Company or Organisation? If YES, please give full details 17 Does this Practice or any Director/Partner/Principal act in any capacity other than stated in the answer to Question 4? If yes please provide details in the YES/NO space provided below. -5- 18 Do you carry out any work whatsoever in connection with the YES/NO manufacture or storage of drugs or medical supplies (other than Hospitals, Clinics and Surgeries?) If YES, please give full details 19 Has your practice ever given any advice regarding the use of YES/NO Combustible Insulated Panels? If YES, please give full details 20 When engaging independent or Specialist Consultants in YES/NO connection with any Contract, do you ensure that such Consultants have entered into a binding contract with the Principal, accepting full responsibility for their own professional neglect, error or omission? (a) In the past? YES/NO (b) In the future? YES/NO 21 Do you require Insurance for (a) Loss of Documents YES/NO (b) Dishonesty of Employees YES/NO (c) Libel & Slander YES/NO (d) Unintentional Infringement of Copyright YES/NO (e) Unintentional Breach of Confidentiality YES/NO 22 What is the amount of the indemnity limit required? £50,000 £100,000 £250,000 £500,000 £1,000,000 £2,000,000 £5,000,000 or more 23 What is the amount of the excess, which your firm would be prepared to carry in respect of each claim? (Underwriters require minimum excesses, depending on the size of Firm and the type of work undertaken) £500 £1,000 £5,000 £10,000 £25,000 -6- 24 (a) Has any claim such as would be covered by the proposed insurance YES/NO ever been made against this Practice or any of its Directors/Partners/Principals whilst in this or any other practice? If YES, please give full details (b) Are any of the Directors/Partners/Principals or employees, after full enquiry, YES/NO aware of any circumstances which may give rise to a claim against this Practice/Firm or their predecessors in business or any of the present or former Directors/Partners/Principals? If YES, please give full details Please note, it is imperative you answer this question correctly: failure to do so could well prejudice your rights if subsequently a claim should arise DECLARATION I/We declare that the statements and particulars in this proposal are true and that I/We have not misstated or suppressed any material facts. I/We agree that this proposal, together with any other information supplied by me/us shall form the basis of any Contract of Insurance effected thereon. I/We undertake to inform Insurers of any material alteration to these facts occurring before completion of the Contract of Insurance. Signing this Proposal Form does not bind the Proposer or Insurer to complete this Insurance. Dated this day of: For and on behalf of (Name and Firm) Signature of Director/Partner/Principal Please attach a brochure and Curriculum Vitae if applicable E.U. Disclosure Clause (UK) Notice to the Proposed/Assured The parties are free to choose the law applicable to this Insurance Contract. Unless specifically agreed to the contrary, this insurance shall be subject to English Law. Any enquiry or complaint should be addressed in the first instance to your Broker. Kerry London Ltd 2nd Floor John Stow House 18 Bevis Marks London EC3A 7JB Tel: 020 7623 4957 Fax: 020 7623 4958 Registered in England No. 2006558 Authorised and regulated by the Financial Services Authority -7- Kerry London Ltd, Professional Risks, 2nd Floor, John Stow House, 18 Bevis Marks, London EC3A 7JB USEFUL CHECKLIST FOR THE ARCHITECTS PROPOSAL FORM When completing the proposal form please just take a minute to check the following points have been taken into consideration. This will assist us in providing you with an expedient and competitive quotation. (Question 1) Ensure that all of the companies trading titles that require coverage are clearly shown under question 1. This should also include but not be limited to past trading titles and/or companies. (Question 5) If any Director, Principle or Partner of the company does not have a recognised industry qualification; please ensure that the individual’s CV is also attached to this application. (Question 13 & 14) When providing turnover and fee details under questions 13 & 14; please ensure that the total income figure provided under question 13 is then mirrored within question 14. (Question 15) This question asks for a percentage split of the companies activities. Please ensure that this figure adds up to 100%. (Question 24) Please ensure that all claims information is provided both present and past. This means any claim and/or circumstance that may lead to a claim should be clearly shown within the proposal form or on separate sheet of letter headed paper. The proposal form must be signed and dated by a company director, partner or principle. Please note: This application form has been designed for businesses that have been trading for more than 12 months. If your practice has not been trading for 12 months please try to answer the questions that will reflect your companies proposed activities for the next 12 months. If you are ever unsure what information is required from you when completing this form please ensure that you contact your broker immediately. -8- INFORMATION ON PROFESSIONAL INDEMNITY INSURANCE FOR Architects - CONTENTS - 1. Professional Indemnity Insurance & their Commercial Exposures. 2. What are the Insurers main concerns? 3. Types of Claim. 4. Main bodies with PI rules? 5. What should an Architect look for? 6. Policy Wordings. 7. Coverage that is normally afforded. 8. Exclusions that usually apply. 9. Extensions that can be included. 1. Professional Indemnity Insurance & their Commercial Exposures. Architecture is one of the older established professions and, as such, Architects are regarded as a "traditional" profession. All Chartered Architects are associates or fellows of the Royal Institute of Chartered Architects (RIBA) although not all Architects are members. Like all those involved in the building industry, Architects have been affected by legislation. The Housing Grants, Construction and Regeneration Act 1996 became law in May 1998. It was designed to tackle problems such as excessive delays in claims and protracted and costly disputes within the construction industry. The legislation did so by incorporating adjudication procedures into all but a few building contracts so that disputes that give rise to claims can be settled in a matter of weeks. Contracts involving private residences at one end and very large engineering projects at the other, are excluded from the new process. 2. What are the Insurers main concerns? As with other traditional professions, insurers will look for qualifications or experience. If a consultant is unqualified the Insurer will want to see a CV. Insurers will analyse a breakdown of the fee income, attention commonly being paid to: Architectural work - new build. Higher hazard. Particularly work involving structural design for industrial or commercial clients. Attention is paid to public sector clients where the work may involve repetitive design e.g. low cost housing or Housing Association work. Architectural work - non structural. Lower hazard. Where work is in the private residential sector but increasing hazard where work is in the commercial sector. Claims tend to be less expensive as the remedial work does not involve the building's "skeleton". Town planning. Lower risk as nothing is being designed for construction but 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. Architectural consultancy. A "catch-all" for other miscellaneous work done by Architects - if it is a large proportion of the annual fees then an explanation is most likely needed. Interior design. Low hazard but increasing where work involves the retail sector, where contract sizes can be high and often with a significant amount of supervisory responsibility. Interior design by its nature tends to be transitory (of short duration) - particularly in the retail sector where premises "re- invent" themselves regularly. Quantity surveying. . Lower hazard. (A person who estimates the cost of materials and labour necessary for a construction job). Project managing and project co-ordinating Project Managing. Architects rarely carry out the QS function but they may find themselves project managing with a responsibility to appoint all other consultants as their sub-contractors. This is a much higher hazard as any claim, regardless of fault, would come through the Architect whose insurers would then have to subrogate (to put a person or thing in the place of another in respect of a right or claim) 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 (good marketing opportunity!). Project Co-ordination. Lower Hazard. The Architect carries out a project management role but does not appoint the others (they are appointed directly by the client) this is better from a risk perspective. Surveys. Higher hazard. 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. Other areas of interest for underwriting purposes include: 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? 3. Types of Claim Negligent design on 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 on 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. 4. Main bodies with PI rules The Royal Institute of British Architects (RIBA). The RIBA is a professional body that represents the interests of the profession. They provide professional training and qualifications and access to information. The RIBA is not a governing body but they do require their members to maintain PI. Architects Registration Board (ARB)*. It is the Architects Registration Board (ARB) that is the governing body. They "police" the profession and they set the guidelines and the minimum standards for PI. The main features of their rules are: Policy wording. Cover must be written on a civil liability basis; "neglect, error or omission" is not wide enough. Limit of indemnity. Limits must be on an "any one claim/each and every claim" basis, unlimited in any one period. Maximum/minimum excess. These are not defined by the ARB other than to say they must be affordable. Legal defence costs. Must apply in addition to the limit of indemnity. 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. Minimum prescribed levels of cover. - Fee income less than £100,000 - £250,000 limit of indemnity - Fee income between £100,000 and £200,000 - £500,000 limit of indemnity - Fee income exceeding £200,000 - £1,000,000 limit of indemnity *These requirements are correct as of July 2004 5. What should you look for? Insurers find it difficult to make money from Architects. Historically, rates have been far too low. The title "Architect" is protected, so only ARB-regulated practices can use the title. These all require the minimum ARB cover. Other building design consultants are not subject to the same mandatory PI rules and insurers often offer limited cover, particularly regarding pollution or collateral warranties. Design & build jobs. In essence, these jobs occur when a client looks for a combined design/build contract. Frequently, the builder takes contractual responsibility for the design and, if there is no in- house design department, sub-contracts the design work to the consultant Architect, Engineers etc. It is important to check that there is no formal consortium partnership created - the Architect might inadvertently incur a joint and several liability for other members of the design team. It's also important to ensure that the design consultants don't take on the contractor's role. If the Architect is simply acting as design sub-contractor under a contractor's design and build job, then the normal policy coverage should suffice. It is common for clients to insist on collateral warranties or duty of care agreements on design and build jobs because there is no direct contract between the client and the design team. Contractors. Probably the biggest source of costly errors for brokers in this class is failing to spot that an Architectural firm is also a contractor. Most proposal forms for Architects don't ask this question directly. For example, a firm might be asked to offer a fixed price for a job. If this is achieved by the firm taking on the entire works, even if the physical work is sub-contracted out (whether to bona fide sub- contractors or not), the firm is in effect acting as the contractor and might invalidate their cover. Insurers regard contractors as very different risks to pure consultancy firms - there's nobody else to blame when things go wrong and contracting is very, very competitive - to the extent that under-priced jobs have a habit of going wrong. Look out for too many staff for the fee income declared, and reference to design and build jobs on the proposal form. Also watch out for work for associated companies that might be contractors. Contractors are insurable but the scope and cost of cover are very different to pure design consultants. 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 Kerry London Ltd 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. But care must be taken to ensure that this kind of agreement is not drafted in such a way as to inadvertently create some form of single project partnership or to expose anybody to liabilities that rightly belong elsewhere. Collateral warranties/duty of care agreements. In order to establish a claim for negligence, a claimant must first establish that the professional owed a duty of care. This may not always be possible if the claimant is not the professional's client, as in design and build jobs. This has led to the profusion of collateral warranty and duty of care agreements that sit alongside the main contract and create a contractual line of attack for the claimant. Of course, clever lawyers have taken the opportunity to extend these kinds of agreements in an attempt to create many more liabilities than might be considered reasonable. For example, exposing the professional to claims from very remote third parties, extended limitation periods, guarantees, etc. 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. Therefore 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 setting out clearly 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 previously. Of course, the "claims made" nature of PI policies causes some difficulty. If an Architect signs up to a collateral warranty having reassured themselves that it is within the scope of his PI cover, what if they later choose to (or are obliged to) change insurer? Or if the insurer changes the wording? For this reason, brokers must urge Architects to sign up to sensible agreements only. This can be very difficult in times of recession in the construction industry when construction professionals will 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 insureds over matters of a day or two unless there has been clear prejudice. With adjudication claims, there is no room for latitude at all. Insurers will not allow insureds 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. 6. Policy Wordings As mentioned earlier, wordings are normally required to be written on a "civil liability" basis (covering all civil liability, not just negligence). If the Insured is unqualified, or qualified only to a limited extent, more basic miscellaneous wordings can be offered. 7. Coverage that is normally afforded 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. Being 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. 8. Exclusions that usually apply Civil liability policies demand careful attention to exclusions so that non-PI exposures are not inadvertently covered. Typically, policies will exclude: Death or bodily injury. Loss or damage to physical property (but fidelity and loss of documents are covered). Punitive or exemplary damages (many policies have no geographical or jurisdiction limitations. North American offices. Liability to other insureds. Nuclear risks. Claims and circumstances known at inception of the cover. Acting as contractor. Onerous collateral warranties. 9. Extensions that can be included Loss of documents. Collateral warranties. Occasionally, some insurers will offer cover for the litigation costs of recovering unpaid fee accounts.
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