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Peace of mind from the right level of PII

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With the arb's requirement for professional indemnity insurance now mandatory, many architects, especially small practices (and perhaps those 'moonlighting' in parallel with their regular employment), will be arranging cover for the first time.

What many professionals forget when setting cover levels is the additional costs involved in litigation that have to be met in the event of a claim. While the arb has stipulated minimum levels of insurance, this is for client protection - not yours. So look at your policy wording carefully: some insurers provide cover that includes your legal fees within the limit set, but more usually insurers meet legal costs in addition to the stated indemnity level. If your cover isn't enough to meet the claim plus the legal fees you may remain exposed - even when your cover exceeds the level of that claim.

Here is a cautionary tale that indicates the importance of setting pi cover appropriately for your own protection.

A small practice, which carried £500,000 cover for each and every claim including legal costs, felt it was adequately protected: the jobs were of modest size and it had never had a claim in over 20 years of practice.

Sadly, the apparent fault of a separately appointed structural engineer necessitated underpinning of a new building in a provincial shopping street.

The architect was co-joined in the proceedings and the full extent of his exposure was realised when it was revealed that the engineer had no pii cover and few assets. A nightmare had begun.

The building work cost £136,642 to which was added vat (which is not recoverable on repairs and thus forms part of the claim) giving a gross construction figure of £160,554. The professional fees for the contract supervision amounted to £25,962 (£30,505 with vat).

Then there was the consequential loss for disruption to the business during a nine-week construction period - a further £38,417. The total claim was valued at £229,476.

The practice has plenty of protection, you might surmise, under the £500,000 cover. But no. The matter was hard-fought by insurers who maintained that the architect had no liability whatsoever. Total costs for an eight-day trial broke down as follows: the plaintiff's legal fees including experts in the disciplines of architecture, qs, geotechnic engineering and structures together with solicitor and barrister totalled £118,470 (£139,202 with vat) which, with the architect's defence at £92,340 including vat, gave a grand total, including the claim, of £461,018.

Yes, there was enough cover, and anyway the defence was successful. But it was a close-run thing - and the architect was well pleased that he had, only that year, raised his pii from £250,000, thus gaining at least some peace of mind during an otherwise traumatic dispute.

Remember, if a dispute runs all the way through court, the actual claim may represent as little as 40 per cent of the total costs you face. If you lose there are professional fees and vat on repairs, consequential losses, plus legal and expert fees for both sides, all of which can add up to a 'killer'. The only good news is that you can offset vat on your own side's professional fees. So be careful when setting your level of pi cover, and do ensure that you make adequate provision for legal costs.

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