AUST – HENDRY building surveyors advise property owners and managers wishing to commission a consultant to perform a BCA Audit, Due Diligence Audit or Building Audit need to ensure that the professional indemnity insurance policy chosen by their consultant provides adequate risk cover in the event of a claim. Since most consultants utilise the services of sub-consultants such as structural engineers, electrical/ mechanical engineers, land surveyors and quantity surveyors, paramount in minimising risk for the property owner / manager is the need to understand the extent to which the policy covers the consultant and the sub-consultant, and how the property owner’s / manager’s interests are protected in these circumstances.
Specialist Professional Indemnity Insurance Broker, Darren Pavic from Bovill Risk and Insurance Consultants, provides some insight into the policy workings that cover consultants and sub-consultants providing a BCA Audit, Due Diligence Audit or Building Audit.
Are your sub-contractors insured?
Understanding precisely who is insured under a professional indemnity insurance policy is critical in assessing the appropriateness of the insurance program, especially if a claim is made due to perceived negligence in a BCA Audit. Policy operation with respect to claims arising out of the actions of sub-consultants is often misunderstood by the consultant’s clients and principal consultants and sub-consultants alike.
The use of sub-consultants by professionals in the property, construction and engineering industries is common practice, whether it is a building inspector undertaking mandatory building inspections for a building surveyor, a specialist design engineer being engaged to assist with a specialist area of a project, or performing various audit reports such as a Building Audit.
Often misunderstood is how liability (risk) is apportioned between the “principal consultant” and “sub-consultant”, how professional indemnity insurance policies operate to insure the various parties, and the potential insurance coverage “gaps” that may exist for each party. We will examine these issues from the perspectives of the principal and sub-consultant.
The extent to which a principal consultant can be found vicariously liable for the actions of their sub-consultant is subject to various factors which include; the nature of services provided, the contract(s) wording utilised and the application of any legislation pertaining to the circumstances. An example of this legislative influence is the ability for a building surveyor in Victoria to reply, in good faith, upon a certificate issued by another building practitioner under the Building Act 1993.
While the extent of apportionment of liability is a legal question, from a professional indemnity insurance perspective the key issues for professionals to understand are:
- Whether their policy will respond if they are found liable for the actions of another party
- To what extent, if any, are they insured by another party’s professional indemnity insurance
Whilst every policy is different, there are some general industry standards that one should expect their policy to meet if it has been arranged by a proficient broker. The Insured is usually a defined term in the policy, with this definition including the entity named in the policy schedule, and its directors and employees. A typical policy approaches the sub-consultancy issue as follows:
We agree to provide cover in respect of any Claim against the Insured resulting from the conduct of any sub-consultant, subcontractor or agent in the Professional Business of the Insured and for whose acts, errors or omissions the Insured is liable. We will not cover the sub-consultant, sub-contractor or agent.
The above clearly spells out that if the Insured is liable for the actions of their sub-consultant the policy will respond to cover the Insured, but will not extend indemnity to the sub-consultant. In practise one would expect the Insurer to seek recovery from the negligent sub-consultant in the event that a claim was paid on account of their actions.