QUESTION
Could I please have some clarity around an issue that I am dealing with?
I have a plumber/gasfitter who offers design work as part of their services. The client mainly works on new build contracts and works alongside the Architect to design bathroom solutions for the end client. They also sign off on plumbing/drain laying/gas fitting installations.
Given the design element, it is clear that a professional indemnity cover is needed; however, I am having significant pushback from insurers with standard wording and endorsement exclusions if the client does both the design and the installation. For instance, I've had insurers include a design and construct exclusion which agrees that the policy will not indemnify the insured for inadequate workmanship relating to the design.
EXPERT ANSWER: Crossley Gates, Glaistor Keegan
As a regular drafter of liability policies, the way the insurance industry addresses (or not) the interface between insuring the direct damage caused by an error in design, plan, specification or workmanship, and any resultant damage arising from that direct damage, has often troubled me. The traditional underwriting principles of both policies seem to apply less and less these days, especially in New Zealand. This is not necessarily a bad thing.
While most PL policies now automatically include liability for the insured's 'products' (things the insured manufactured, constructed, sold or repaired), traditionally, a PL policy only covers liability for resultant damage arising from this direct damage. In other words, the damage to the product itself is never intended to be covered. Those who have worked in PL claims will be all too familiar with pointing out this limitation at claim time.
On the other hand, PI policies, while usually covering risks in relation to intangible services, usually don't have this limitation; liability for direct damage/financial loss is covered as well as resultant damage/financial loss. It's not hard to see how this increases the exposure under these policies.
More recently, liability underwriters have been blurring the lines on this distinction by adding some (usually sub-limited) traditional PI cover in a PL policy. The faulty workmanship extension in a PL policy is an example. While a standard PL policy covers liability for faulty workmanship, it only covers resultant damage. The extension expands this to cover liability for direct damage (to the product), like a PI policy. It is now a question of how far this goes into other traditional PI exposures, such as design (usually totally excluded in a PL policy).
There is no reason in principle why the covers under a PL policy and a PI policy could become combined as one policy, but two things would have to happen before that: 1. Both need to become claims-made, so they operate the same way, and 2. the premium will need to reflect the combined exposure of a PL and PI policy.
