Professional Indemnity Insurance for Architects – Why is it important?

The law and architects' code of ethics requires an architect to exercise their skill at an appropriate level expected of that profession. But professionals are only human and mistakes do happen. Any financial loss arising from a mistake or failure by that professional to do so, may result in an award in favour of a third party. A professional may also be held to be liable for a mistake even though there was no negligence (i.e. breach of the Trade Practices Act). Generally an employee architect is covered by the employer's PI cover but appropriate and adequate PI insurance is essential for those undertaking any consulting or contracting work for which they are liable.

An architects PI policy is designed to protect the personal assets of a consulting architect against damages awarded against them by a court, or resulting from an approved negotiated settlement, in relation to an act, error or omission committed by the professional during the conduct of their professional business activities. It also covers the costs and expenses of defending claims.

In today’s litigious society, no architect undertaking consulting or contracting work can therefore ignore the real possibility that a claim may be brought against them by a disgruntled client. A PI policy offers peace of mind, allowing you to carry on your architectural services business activities knowing you're appropriately protected by the relevant coverage.

Why do you need PI insurance?

You may feel that because your work is supervised by others, you do not need PI Insurance, but please consider this:

  • Defending a claim of "negligence" usually involves seeking specialist legal advice and costs can very quickly mount up. You could expect to pay, for your own legal costs alone, $15,000 per day should the claim end up in Court. On this basis, the cost of defending a claim can very easily become a financial nightmare for the uninsured professional person.
  • Architects have been held to be negligent even though their work was supervised by the principal by whom they were "employed". In some of those instances the principals own PI Insurance did not protect the Architects.
  • Many government bodies, local authorities and private consulting firms now insist that the professional contractors and consultants with whom they deal carry PI Insurance.
  • Everything a professional person does and says in the course of their business could result in a professional liability claim. In the present climate, spurious claims of negligent advice are being made with the aim of delaying the payment of professional fees. You might know that the claim is spurious, but you still may need to defend it. Remember, Civil Courts operate on the balance of probability principle, rather than the level of proof required in Criminal Courts.

Claims Examples:

  • An architect designed a balcony at a restaurant in Adelaide. The deck section of the balcony collapsed during a New Year’s Eve party. Approximately 30 people were injured when they fell 5 meters to the ground. 18 separate proceedings were issued from the same accident. A writ was served alleging faulty and negligent design. Claim settled for $600,000, plus $150,000 in legal costs.
  • A project architect was joined in an action against the builder for defects to a building. Insurer raised a substantial reserve due to heavy legal costs to defend architect. Architect was to contribute $150,000 to rectification works, legal fees were an additional $200,000.
  • A housing developer took action against an Architectural firm alleging that they did not properly supervise, oversee and manage the project. The action was initiated due to a series of faulty air-conditioning units, however the architectural firm was joined in the action due to its role as the project manager.

Frequently Asked Questions on PI Insurance

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