Jardine Lloyd Thompson Ltd

Construction and Professional Indemnity Insurance

Understanding The Issues

Andrew Harrison-SleapPhone: 0207 528 4711

E-mail: andrew_harrison-sleap@jltgroup.com17 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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Only Professional Activities conducted after the Retroactive

Date and before the Discovery Period are covered

Feasibility / Front End Design Design & Construct Defects Liability Run off / Discovery Period

Retroactive Date

1/04

Policy Start Date

1/05

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

Project PI Time Line

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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)

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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 D&B 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 / D&B,

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?