PII is typically purchased on an annual basis in order to protect against claims from third parties alleging loss from negligent advice, design or supervision provided by the firm. These policies insure the firm for all current and historical work on a claims-made basis.
Is it possible to insure on a project-specific basis?
For the right projects, yes. Traditionally, Single Project Professional Indemnity Insurance (SPPI) has been available primarily for larger global projects. While that profile has differed from insurer to insurer, generally speaking, insurers would not offer SPPI on contracts under a £500m contract value. Subject to the correct criteria though, SPPI has been available for a period of up to 20 years in some very extreme cases, offering a single aggregated limit of indemnity.
SPPI insurance was initially developed to ensure dedicated capacity or limits of a predetermined amount for the entirety of the design and construction period of the project. Many owners were concerned that there was inherent risk in relying on their consultants' annual PI policies. This is because the nature of these programs could change from year to year or be influenced by extraneous circumstances where the protection they were relying on changed. The SPPI approach ensured that the specified terms required under the contract and the limits were contractually provided for the period required.
Due to the increasing size and complexity of construction projects, the use of multi-year SPPI for firms had increased in the last 15 years for all types of construction firms across the world. The number of insurers providing SPPI policies had grown, particularly in the London, Dubai, Australian and Singapore insurance markets.
Recently though, there has been a notable retrenching by global carriers because of significant losses on projects underwritten in the Canada and Australia construction markets. If we look at the UK, SPPI capacity has all but disappeared. In many parts of the Middle East and Asia however, SPPI policies can still be placed, but the underwriting criteria is becoming more stringent and the market becoming harder.
There are several key benefits to placing SPPI, compared to simply relying on individual annually renewable PI:
- It ring-fences liabilities and claims, thereby protecting the annual policy
- The multi-year SPPI policy continues in force, even where individual annual PI cover was unavailable for any reason, thereby ensuring ongoing protection and contractual compliance
- Fixed premium costs
- Discount on annual PII as project is covered 'elsewhere'
- SPPI is usually non-cancellable
- Reduction of project administration in providing annual insurance certificates etc
Disadvantages
- Cost – policies can be expensive
- Coverage – in most cases, SPPI is on a more limited basis than an annual PII policy
- Large self-insured retentions/excesses usually apply
- Availability – as referenced above, SPPI is difficult to obtain in many regions
Alternative options
Depending on those drivers for an SPPI policy, there are some other options to consider, including:
- Purchasing a larger annual PII limit
- Purchasing an 'any one claim' annual limit or 'top and drop' if available
- Looking at project specific excess layer coverage
- An OPPI (Owners' Protective PI) policy in the name of the owner can provide additional cover in excess of the consultant's/contractor's annual PII policies