Briefing: Consultants face indemnity insurance crisis Free

A delegation of ACE representatives met construction minister Nigel Griffiths in March this year to press the case for legal reform. A report1 presented to the minister cited recent rises of up to 300% in professional indemnity premiums for engineering consultancies.

Further meetings were held recently with construction, constitutional affairs and Treasury officials and a response from the minister is hoped for soon.

The current situation is unsustainable. UK engineering consultancies are facing intolerable business pressures, brought on by rising professional indemnity premiums, which in some cases are up to 10% of turnover. Consultancies also face rocketing claims excesses and an increasing number of cover limitations, particularly for work in relation to asbestos as well as exclusions such as terrorism.

Many engineers are finding it increasingly difficult to operate within a legal framework in which they are effectively regarded as the financial guarantor for other parties to a contract when claims arise. The current system of joint and several liability discriminates against firms, irrespective of blame, making them responsible for the failings of other parties over which they have no control.

There is a growing practice in the construction industry for engineers to be included in a claim purely because they are likely to carry insurance, even where they have little, if any, potential liability. This is manifestly unfair and hardly inspires confidence in a legal framework that is supposed to protect all parties to a project.

ACE is thus pressing for the UK Government to promote a bill to change the law on joint and several liability relating to the construction industry, including full consideration of a rational and fair statutory capping regime to alleviate the problems of disproportionate liability.

The Association are also calling for measures to address the problem of terrorism exclusions in policies and the lack of available insurance cover for asbestos-related work. Consultants should be excluded from terrorism-related risk as terrorist attacks could bankrupt consultants when they are sued by owners of damaged buildings and structures.

There are three possible solutions to the problem.

• Government accepts terrorism as a risk of the nation and funds victims' claims directly.

• Government amends coverage provided by an existing Government reinsurer, resulting in consultants effectively being covered under the terms of building owners' property insurance.

• Set up a Government-sponsored professional indemnity pool, sharing risk and compensation between a large number of public and private sector organisations (such a scheme was set up in the US in 2002).

The ACE wants to work with the Government and other stakeholders in the industry to look at ways of solving the serious problems facing consultancy businesses. It is building support for change and look forward to hearing from others who share its views.

Only by removing the existing discriminatory system of joint and several liability and replacing it with some form of proportionate liability, together with sensible insurance premiums and excesses, can the UK be assured of a construction industry where companies can succeed in business and where clients and end users get the best possible results.