Insurances

Contract engineer's professional Indemnity Insurance

PROFESSIONAL INDEMNITY INSURANCE OF A CONTRACT ENGINEER PROVIDES PROTECTION, IF DAMAGE IS CAUSED TO A THIRD PARTY IN CONNECTION WITH THE PERFORMANCE OF PROFESSIONAL ACTIVITIES (E.G. DUE TO AN ERROR IN SUPERVISION)

The term “contract engineer” is not defined in the Polish Building Law, but it has been introduced by the International Federation of Consulting Engineers (FIDIC), therefore, the scope of the contract engineer’s duties is primarily regulated by an agreement with the investor.

The list of contract engineer’s duties is much more extensive than that of a person who performs independent technical functions in the construction business and, therefore, the mandatory professional indemnity insurance of a building engineer is not enough to ensure complete protection of the contract engineer. Thus, taking out a voluntary professional indemnity insurance is recommended, the more so, because the contract engineer is usually a team of specialists, and not an individual person.

Contract engineer’s professional indemnity insurance (contract engineer’s PII) may cover such activities as:

contract administration – managing the investment project, including the construction;
technical and legal supervision on site, including supervision of the construction works in progress and the quality of the works performance;
supervision over, and acceptance of both the main structure and the particular works, including hidden or temporary works; participation in tests;
owner representation services (also in accordance with the FIDIC rules);
supervision over all documents prepared by the contractor, including verification of the design documents’ and executive documentation’s compliance;
carrying out tender procedures for selection of contractors and suppliers;
reporting to the employer/investor.

Major factors in contract engineer’s professional indemnity insurance (contract engineer’s third PI)

Pure economic losses/financial lossesIn this type of insurance, there is a need to cover not only damage to property (loss of property, e.g. physical destruction of the object of construction works) or damage to person (death, bodily harm or health disorder, e.g. bodily harm as a result of structure’s collapse due to an error in supervision), but also pure economic losses/financial losses (additional costs that are not related to destruction of property or damage to person, e.g. the need to re-build an improperly built structure, which has collapsed). In the case of contract engineer’s errors, it is pure economic loss/financial loss that is often involved.
Timeframe of insurance (time triggers)As regards professional indemnity insurance, the insurers have different ways of determining the timeframe for their liability, i.e. what event occurring during the period of insurance they shall be liable for. Professional indemnity insurance of a contract engineer may be offered based on an “act committed” trigger (action or omission, meaning an error made during the period of insurance), as well as a “claims made” trigger (claim reported during the period of insurance).When taking up new insurance, it is important not to change the triggers in an unfavourable manner, or cause a “gap” in insurance, but also to eliminate the limitations of the statutory time limits for claims to be reported by injured parties, which time limits may be included in the General Terms and Conditions of Insurance.
Protection against loss caused by subcontractorsAs regards contractual claims (i.e. claims due to non-performance or improper performance of an obligation), the contract engineer is liable for losses caused by its subcontractors, i.e. for all errors made by the subcontractors, who had been assigned the particular works, even if such subcontractors hold a mandatory professional indemnity policy or a voluntary professional indemnity policy. Therefore, it is very important that the insurance covers losses caused by subcontractors (subcontractor’s professional indemnity insurance).
Determination of the sum guaranteedDetermining the sum insured on the basis of the value of remuneration for the given contract is not a sufficient solution, although it has often been applied in contractual provisions. The sum guaranteed should be determined based on the potential loss that may occur. It should be taken into account that the remuneration for a given contract is many times lower than the value of the structure built, which may collapse as a result of a workmanship error, or there may be a need to re-build the structure.
Protection against losses caused by licensed staffIn accordance with the Polish Labour Code, the employer is liable for the losses caused by their staff. Therefore, in the case of a loss caused by a licensed employee, even if they hold a mandatory professional indemnity policy (e.g. civil engineer’s professional indemnity policy or architect’s professional indemnity policy), the claim will be forwarded to the employer – the contract engineer who entered into the agreement with the ordering party. Upon the loss remediation, the employer may recourse a claim against the employee (and possibly effect payout of damages out of the employee’s mandatory professional indemnity policy), however, the liability of the employee is limited to the value of their three salaries and the damages will also be limited to such value (only intentional fault does not limit the employee liability to the value of their three salaries, but even then the mandatory insurance shall not cover the loss). Taking out professional indemnity insurance of a contract engineer ensures protection in the case of losses caused by the employees (usually with exclusion of losses owing to intentional fault).

Contract engineer’s professional indemnity insurance (contract engineer’s PII) may additionally cover, among other things:

receiving the proper permits and decisions regarding the investment project;
exceeding the budgeted costs, if this results from a loss caused by the insured’s omission and such loss is covered by the insurance;
exceeding the determined deadline for construction works’ completion, if this results from a loss caused by the insured’s omission and such loss is covered by the insurance;
losses originating as a result of office activity, losses caused to staff, losses caused to the premises leased;
losses in the documents entrusted;
retroactive date/ application of cover to losses occurring before the starting date of the insurance period as stated in the policy.