Insurances

Project manager's professional Indemnity Insurance

PROFESSIONAL INDEMNITY INSURANCE OF A PROJECT MANAGER 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 scope of duties of a project manager is regulated by an agreement with the investor/employer on project management services. Usually, the duties of a project manager include organising and coordinating the activity of all parties participating in the investment project, and in particular ensuring that:

the building permit design and other designs, if needed, are prepared;
the site manager takes over the management of the construction site;
the health and safety plan is prepared;
construction works are completed and accepted;
when the high level of construction works complexity or land conditions justify this – the execution of construction works is supervised.

The project manager may also be obliged to provide owner representation services (owner representative).

In such case, the project manager’s basic duties will include a duty to:

represent the investor on site by controlling the construction works’ compliance with the design and the building permit, as well as regulations and technical know-how;
verify the quality of the works performed and construction products incorporated, and in particular, prevent the use of defective building products or products that are not allowed for use in the construction business;
verify and accept hidden and temporary construction works, participate in tests and technical acceptance procedures regarding systems, technical equipment or chimney shafts, and prepare and participate in acceptance procedures for structures completed and their commissioning;
confirm the actually completed works and the removal of defects, and control, at the request of the investor, the settlements of construction accounts.

Project manager’s professional indemnity insurance (project manager’s PI) may cover the above mentioned activities.

The list of project manager’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 a project manager. Thus, taking out a voluntary professional indemnity insurance is recommended, the more so, because the project manager is usually a team of specialists, and not an individual person.

Major factors in project manager’s professional indemnity insurance (project manager’s PI)

Pure economic losses/financial losses
In 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 project manager’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 project manager 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 subcontractors
As regards contractual claims (i.e. claims due to non-performance or improper performance of an obligation), the project manager 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 guaranteed
Determining the sum guaranteed on the basis of the value of remuneration for a 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 staff
In 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 project manager 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’s 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 project manager ensures protection in the case of losses caused by the employees (usually with exclusion of losses owing to intentional fault).

Project manager’s professional indemnity insurance (project manager’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.