Are Architects Required to have Insurance?
Architects are required, under the Architect’s Code, to have professional indemnity insurance (PI). According to finance site NimbleFins, PI insurance is a type of business liability insurance that is vital for individuals and businesses who are paid for their expertise, including architects. PI insurance provides financial protection against claims of wrongdoing or financial loss due to wrongdoing.
PI insurance will fund legal costs arising from a claim as well as compensation costs if you are found liable. It can also help defend against frivolous claims. It is vital for businesses and individuals who may come up against claims of negligence, mistakes or omissions in the professional advice or work carried out, or allegations of financial loss or damage to a client.
PI insurance varies between policy to policy, but it is able to provide cover for:
- Negligence, for example, giving the wrong advice, mistakes or even failing to deliver on work that was agreed.
- Negligent misstatement, which can include negligent misrepresentation.
- Intellectual property infringement, such as copyright, trademark or making clients wrongfully believe a product or service belongs to someone it doesn’t.
- Breach of confidentiality, which can include misuse of confidential information.
- Defamation, including slander, libel or other damage to the reputation.
- Dishonesty, which extends to employees and contractors.
- Computer virus or data hacks, though this is not as common in policies.
Even the most careful and diligent person can make mistakes and find themselves being sued. But even if there is no wrongdoing, a claim can still be made, and there are significant financial implications to defending such an allegation. If you are found liable, then PI insurance will cover the compensation payments. The Architects Registration Board sets the minimum PI insurance cover as £250,000 per claim but says this may need to be higher depending on the architect practice and type of work being carried out.
While other insurances are not legally required, they are vital in protecting businesses, including architects, from claims. Architecture work can be high stakes, and professional errors can cost clients thousands or even millions. The right insurance cover can protect businesses from claims that could otherwise have a devastating financial impact.
Other insurances architects may need to include:
- Public liability insurance.
- Employees liability insurance.
- Business equipment insurance.
- Commercial vehicle insurance.
- Personal accident insurance.
What is PI insurance for architects?
Professional indemnity insurance is a critical cover for architects, as it is for any professions which are paid for their advice and a service. Under the Architects Act 1997, the Architects Registration Board is required to draw up a code of practice. In Standard 8 of that code, the requirements of professional indemnity insurance are detailed. It says:
“As an architect, you are expected to have the appropriate insurance cover for yourself and employees if you have them. You must also make sure that cover is adequate in the event of a claim being made with a minimum level of cover and run-off cover.
“If you are an employee, you are still required to make sure you are covered by professional indemnity insurance or appropriate indemnity cover.”
The Architects Registration Board also sets a minimum requirement of the cover at £250,000 for every claim.
Due to the nature of claims, PI insurance for architects is sold on a claims-made basis. This means that for cover to be in place, the insurance policy must be active both at the time of the alleged mistake or wrongdoing as well as when the claim is made. This is due to the rules around when claims can be brought – up to six years after the alleged event or up to three years after any wrongdoing was noticed.
The PI insurance for architects provides cover for:
- Drawing errors.
- Delays coming from a failure to obtain planning permission.
- Decisions made without consultation with the client.
- Using different materials to what was agreed.
- Providing poor advice.
- Failing to provide a design within a project’s budget.
- Personal injury.
Is PI insurance compulsory for architects?
It is a compulsory part of being registered in the profession for architects to ensure you have adequate professional indemnity insurance. The requirement to have PI insurance is listed in the Architects Code with a recommended minimum limit of £250,000 for claims.
The Architects Registration Board wrote up the architect’s code to lay down the standards of professional conduct. Within that code is a section all about professional indemnity insurance under standard 8. It states that architects are required to have an appropriate level of insurance and that the insurance is adequate to meet a claim should one be made. It also states that the architect’s responsibility, whether they are employed or work on their own, ensures that policy is in place, including any run-off cover.
Run-off cover is designed to ensure that an architect is still protected from claims which could arise up to six years after a project is carried out, even if the architect retires or stops practising.
How much does an architect’s insurance cost?
The cost of an architect’s insurance can vary due to a number of factors. According to NimbleFins, the cost of both public liability insurance and professional indemnity insurance for an architect could be from around £900 a year. Still, that price can rise significantly depending on the amount of cover needed and other factors.
The more coverage limit an architect needs, the higher the cost of the premium. But, having said that, it is good to note that the initial £1million cover is the most expensive, with each additional £1million costing less.
Many factors will be taken into account when determining the cost of an architect’s public liability and professional indemnity cover.
- Financial turnover.
- The size of contracts being carried out.
- Whether the architect is a sole trader, in a partnership or part of a limited company.
- If the architect has involvement in project management.
- The type of projects being carried out, such as housing, public sector, amusement rides, swimming pools etc.
- The types of work, such as new builds, alterations and extensions, planning supervision etc.
- Whether the architect works with asbestos.
The cost will also depend on the additional policy coverage needed. For example, architects would generally have professional indemnity insurance as well as public liability, but architects running businesses with employees will also need employers’ liability insurance and possibly others such as business equipment insurance and commercial vehicle cover.