Professional Indemnity Insurance, Risk and AS 4122
Jack Birrell considers the issues of professional indemnity insurance, risk and AS4122.
PI Insurance is perhaps the single most important tool in an architect’s toolkit.
AS4122-2010 is one of the most common contracts we work with and, while it is a very good document, there has been concern expressed recently about certain clauses, client amendments and the contractual cover offered by different PI insurance policies. ACA – WA has worked hard to find a solution to these concerns.
I practice on the other side of the country – in Tasmania – and the discussions I have had with insurers recently point to very different attitudes towards PI insurance and AS4122-2010. Following this dialogue, I offer the following comments as background on this important topic. PI insurance is a matter of serious concern, but I worry that some aspects of this recent debate appear to be more about an insurance sale pitch for market-gain, rather than common sense dialogue for architects.
Since its initial publication in November 2010, the AS4122-2010 Contract has provided a well-balanced set of contractual terms and the ACA recommends it to architect members.
The AS4122-2010 Contract includes many protective provisions that we use as architects, and before signing most architects would review contracts with our insurers for comment and advice. For example, key clauses regarding a financial cap or ‘Limitation of Liability’ (clause 29), which seek to restrict an architect’s liability by reference to a specific monetary amount, should be mutually discussed with your insurer.
Based on the above comments – and through regular review of various more onerous “client-drafted” contracts – the PI insurers I have spoken with state that, “the use of AS4122-2010 provides a more equitable means of risk allocation and transfer between a client and an architect.”
These insurers go on to say that, “the use of AS4122-2010 also has positive ramifications in the context of an architect’s PI coverage as a broad policy”, and that they would respond automatically to the liabilities conferred by AS4122-2010 in its standard unamended form. In retrospect, “the same situation applied to the AS4122-2000 Contract, which was the widely used predecessor to the AS4122-2010 Contact (for around 10 years)”. The insurers I interviewed similarly covered these contract liabilities.
But the concerns expressed recently indicate that there have been some more restricted PI polices in the marketplace, and that some of these have broad contract liability exclusions. That is, that any extra liability assumed in a contract beyond the usual position – for instance, indemnity clauses, high duties of care, novation agreements and ‘contracting out’ of proportionate liability legislation – may not cover liabilities in typical “client-drafted” contacts. The insurers I have spoken with considered that “it would be rare for these same exclusions to be triggered in the context of a standard unamended AS4122-2010 Contract.”
The ACA does not promote any one PI Insurer over another. But we do advise that all architects consider the range of PI products available in the context of AS4122 over the last 14 years. It should be noted that the good PI insurers I have interviewed all report “they have always provided contractual cover in regard to the complex areas of Duty of Care, Confidentiality, Limitation of Liability and Indemnity.”
Given all of the above, I am concerned when an insurer’s pitch is that they “now” extend cover to areas and clauses of AS4122 that were restricted in the “past”. If your policy is only “now” covering contractual risk in AS4122 it may be time to ask why this was not covered in every AS 4122 contract instance – over the last 14 years?
It’s my opinion that, if you consider that you may have been at risk under AS4122, then you should look for a PI insurer that promotes open dialogue on each and every contract and will review and advise you on each and every contract you enter into, and perhaps go with the one who is, and has been, confident and happy for you to use AS 4122-2010 without restrictions now or retrospectively. There are good PI insurers that already cover the contract liabilities of AS 4122. It is a 14-year-old standard industry contract and these insurers are happy for architects to use it standard or in amended form.
Review, recommendation, advice and dialogue with a good PI insurer are vital to any architectural business. Make sure you have one who works with you in a collaborative and effective manner.
Jack Birrell is the Tasmanian Representative on the National Executive Committee of the ACA and a director of Birrelli Architects.