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Professional Indemnity Insurance For Architects
Architects are no different to other professionals providing services for clients. No matter how much care and diligence is taken mistakes can occur which can be costly. For example, an error in a plan for a construction project, discovered only once work has begun, can mean expensive materials have to be wasted and that demolition and rebuilding is required. The client is likely to sue the architect for negligence. It is essential that the architect has sufficient professional indemnity cover, particularly as society becomes more litigious and claims for professional negligence increase. Moreover, professional indemnity cover provides peace of mind not only for the architect, but also for clients who can be confident that if the architect they have contracted work is negligent, they hold sufficient cover.
In the UK, there are two professional bodies covering architectural services.
The Architects Registration Board (ARB) established by Parliament in the Architect Act 1997 to regulate the profession and ensure good standards.
The ARB defines its duties as:
- Providing advice on and recognition of qualifications needed to work as an architect;
- Maintaining a UK register of architects;
- Setting out a code of conduct for architects and monitoring standards;
- Making sure only those registered work as architects; and
- Being the competent authority for the profession in the UK
In order to work as an architect a practitioner must be registered with the ARB. Architects working without registration are breaking the law. The ARB has approximately 34,500 registered members and one of its requirements is that members, irrespective of whether they work for a large multinational company or are sole practitioners, must have “adequate and appropriate” professional indemnity insurance, the limit of which is set based on fee income per annum, as follows:
- £250,000 where fee income is less than £100,000
- £500,000 where fee income, is between £100,000-£200,000
- £1,000,000 where fee income exceeds £200,000.
The ARB cautions sole practitioners and small operations whose gross fee income is less than £100,000, of the dangers of basing professional indemnity cover solely on that. This is because compensation claims may also involve third parties where the financial consequences are far greater than the cost of the original project.
The Royal Institute of British Architects (RIBA) works to improve building projects, thereby also improving communities and the environment. RIBA provides training and sets standards to help its members develop in their chosen profession. Professional indemnity insurance is compulsory for members and RIBA has its own insurance agency which trades under the name of Arthur Gallagher (UK) Ltd, part of the Heath Lambert Group, one of the UKs largest professional indemnity brokers and a market leader in professional indemnity cover for architectural practices. It is the only insurance broker endorsed by RIBA. Whilst the RIBA does not set a minimum level of cover it does endorse the £250,000 minimum set by the ARB.
What insurers look for.
A potential insurer will need to know as much as possible about the work undertaken by an accountant or accountancy practice. They will need assurance that people hold the appropriate professional qualifications or if not are able to submit a comprehensive CV of experience to date. They will also want to examine the structure of fee income to determine what sort of work is undertaken primarily. This is because the level of hazard or risk differs in relation to different types of architectural practice. For example:
- Architectural work on new builds is high hazard, particularly if the work is in the commercial or industrial sector;
- Architectural work (non-structural) is low hazard as it does not involve the foundation of a building of its framework. However, when undertaken in the commercial sector this work does carry more hazard than in the residential sector;
- Feasibility studies and town planning is low risk because nothing is built.
- Project management of a construction project by an architect is high hazard for professional indemnity purposes. Claims that are the result of the negligence of a consultant or contractor will initially be made against the project manager whose insurance company would then look to the insurance company of the party who made the error. Architects working as project managers must, to protect their interests, ensure that all members of the team have adequate professional indemnity cover.
What level of professional indemnity cover is required?
The level of cover must be related to the scale and nature of the work done by the architect or firm for whom they work. The fundamental question must always be; what is the potential size of the loss on any project where it transpires that the architect was at fault? Both the ARB and RIBA advise architects to work with a broker who understands the specific risks they are exposed to and to question their client about the level of indemnity insurance they believe would be appropriate. Some insurers can provide bespoke cover taking into consideration the size of the firm and its annual income. A summary of cover for small firms will be drafted differently to that of a large company.
What should be included in professional indemnity cover?
Whilst policies might differ slightly one would expect them to cover as a minimum costs arising from the following:
- Civil liability in line with Royal Institute of Chartered Surveyors requirement;
- Criminal prosecution and defence costs related to building and health and safety regulations;
- Innocent non-disclosure;
- Defence costs in addition to any indemnity limit;
- Work done by ex-employees;
- Court attendance compensation; and
- Losses as a result of cyber attack.
This is not an exhaustive list, extra cover could be taken for things like work involving asbestos or mould; to defend charges of copyright infringement or losses or damage to documents.
Sole practitioners who perhaps work on a part-time basis and earn less than £10,000 per year must not underestimate the need for minimum cover of £250,000. The impact of any mistake may, in addition to the architect’s client, be felt by others who resort to litigation to recover losses incurred.
Architects working for a practice.
Individuals should not just take it for granted that the professional indemnity insurance covering the company they are working for will provide adequate cover. Most likely it will but they should check, and where necessary take out their own additional cover. This is also the case with architects providing consultancy or working through an agency.
Architects providing free advice or advice for benefits in kind.
An architect has a duty of care to their client irrespective of whether they are charging a fee, providing free advice or accepting remuneration in the form of benefits in kind. The architect is still open to charges of professional negligence. It is unreasonable for a party recovering such services to expect the architect to pay for professional indemnity cover and should provide it on their behalf.
Private work done outside of usual employment.
Professional indemnity insurance covering an architect for work done as an employee of a company is unlikely to cover them for any outside work. Architects acting in a private capacity outside the scope of their normal day job must ensure they have adequate and sufficient indemnity cover.
Architects working abroad.
If a practitioner intends to work abroad, they should check with their broker that they will still be covered under their professional indemnity insurance and if not arrange for it to be included. Also, they should find out whether and claim would be dealt with in the UK or in the country where the work was carried out.
Architects working on their own properties.
An architect is unlikely to be able to take out professional indemnity cover to work on his/her own home; they are hardly going to sue themselves. Nevertheless any mistakes could affect a neighbouring property, land or public utilities and they should ensure that building and public liability insurance is in place and sufficient to cover any claim.
Run-off policies and retired practitioners.
It can take many years for a claim to surface which is why people who are starting to wind-down their business and the amount of work they do in preparation for retirement should speak to their broker to ensure that they have sufficient cover to meet any claim arising from work done in the past. Run-off cover is provided when trading has ceased and a minimum of six years is recommended. Although architects who have worked as employees of companies that continue to trade should be covered by the professional indemnity insurance of the company, it is always best to check.
A final word.
Professional indemnity insurance is a legal requirement for architects. However, it is up to each practitioner to determine whether they have sufficient cover for the work they do. Help is available from the ARB, RIBA and commercial brokers to help architects ensure that they are properly protected. It is simply too dangerous for architects to make assumptions about the level of cover provided by their employer or what might be covered within an individual policy. The consequences of inadequate professional indemnity cover can be catastrophic.
Being an architect: what is the worst that can happen?
When buildings go bad ......
The Leaning Buildings of Santos, Brazil
The beachfront, in the city of Santos in Brazil, offers the amazing sight of a whole series of high-rise buildings visibly tilting one way or another. There are over eighty high-rises that have a tilt of up to 1.8 metres in the city, many of them apartments that are still inhabited.
At the turn of the 20th century Santos was a developing into a major port, exporting coffee around the world. With this new found wealth the city also grew rapidly, however, for decades there were no building restrictions regarding the type of foundations required for high-rise buildings. The soil in Santos is made up of a layer of sandy soil covering a bed of clay. Instead of pilings driven into the bedrock below the clay, the high-rises were constructed on concrete slabs with foundations just four or five metres deep.
It was only in 1968, after buildings began to visible tilt, that the requirement for deep foundations were put into place. The problem for the older buildings remain however, and is made worse by their proximity to each other. When one starts to lean, the displacement in the ground often affects its neighbours.
Although city engineers have deemed them safe, not surprisingly, the price of the apartments in these buildings have collapsed.
Vdara 'Death Ray', Las Vegas
The 57-storey, glass-fronted Vdara Hotel and Spa in Las Vegas offers its guests a little more than expected. The south-facing, concave building acts as a parabolic reflector, so that at certain times of the day it creates a beam of heat that slowly crosses the pool area of the complex. Sunbathers have reported that the beam is hot enough to melt plastic bags and cups and even singe hair.
The possibility of this effect was, in fact, anticipated by the designers of the hotel, who had installed a special film on the glass panes of the building to scatter the sun’s rays. It would seem that this was not enough. Employees at the hotel call it the "Vdara Death Ray". Management at the hotel prefer to call it a "solar convergence".
The architect of the Vdara hotel, Rafael Vinoly, also designed the 37-storey building at 20 Fenchurch Street in London. Nicknamed the "Walkie-Talkie" because of its shape, this building also reflected a beam of heat focusing on the street below, and reportedly melted the wing mirror and buckled the body panel of a parked car.
Mr Vinoly is not planning on featuring in an upcoming Bond movie.
MIT building, Massachusetts
Unconventional and groundbreaking designs also bring risks. The MIT commissioned Frank Gehry to design the Stata Center, which opened in 2004 at a cost of $300 million. The radically shaped building became an instant local landmark, but three years later, MIT filed a negligence lawsuit against Gehry Partners for design flaws in the building.
The suit claimed that the outdoor amphitheatre began to crack and flood soon after its completion, because of drainage problems. In addition, due to the design of the windows and roofs, clumps of snow and ice were periodically dumped onto the pavement and blocked fire exits. Other issues included, mould growing on the exterior brickwork and leaks throughout the building.
Three years later the lawsuit was "amicable resolved". The details of the terms of the resolution, and if any sums exchanged hands, remain undisclosed.
The Plywood Palace, Boston
The glass-fronted John Hancock Tower was completed in 1976 and is still the tallest tower in Boston, Massachusetts. Famously, the problem with the glass panels became evident in 1973, while the building was still under construction. During a storm, dozens of the huge glass windows popped out of their frames and fell crashing to the streets below. In the following months, police were forced to close off the streets around the building whenever winds reached 45 miles per hour, as more of the glass panels would fall to the ground. Plywood was used to cover the empty window frames, and with so many panels falling out, the building came to be called the “Plywood Palace“.
In fact, this tower was plagued by problems from the start. When digging out the foundations, the steel bracings holding the soil buckled, leading to damage to nearby buildings and cables.
Further issues came to light after the completion of the project when some residents in the upper floors of the 60-storey tower complained that the sway in the building was giving them motion sickness. The building was not only swaying backwards and forwards as it was designed to do, but it was also, unexpectedly, twisting in the wind. A dual Tuned Mass Damper had to be installed on the 58th floor to reduce the sway and twist.
To add to the list of woes, a final review of the structural integrity of the building discovered that, although the tower was adequately supported from falling over on its wide flat sides, in specific wind conditions, there was the chance it might fall over on its narrow sides. Once again the contractors were called in, and 1,500 tons of diagonal steel bracing was installed all the way to the top.
Thankfully no further major issues were discovered, and the Hancock Tower has been a beloved landmark to the city of Boston for over thirty years.
Except for the Observation Deck. It was closed after the September 11th terrorist attacks for security reasons, and has remained closed, to the public, ever since.