Construction and engineering professionals need to manage the risks of natural and man-made catastrophes with adequate professional indemnity insurance.
Brokerage firm AON’s Weather Climate & Catastrophe Insight 2017 states that 97% of the 330 global natural disasters last year were weather-related.
Furthermore, losses caused were 93% higher than the 2000 to 2016 average, says AON.
While climate change and extreme weather events are important factors for construction and engineering professionals, the cause of natural or man-made catastrophes is often latent, or even patent, defects in the design, construction, repair or maintenance of infrastructure.
An example is the collapse of the suspension bridge in Genoa, Italy, in August. A 200m section of the structure caved in, killing and injuring dozens. Designed by an engineering company, the bridge was completed in 1967, with major repairs in the 1990s and restructuring work in 2016. According to news sources, it required continuous maintenance because of erosion caused by the sea air and there are reports of vehicles being damaged by falling concrete as far back as the 1980s.
Although the cause of the collapse is unknown, Hannes Marais and Caroline Theodosiou of Norton Rose Fulbright SA say indications are it was caused by defects in the design, construction, maintenance and/or repair of the bridge.
“If so, it raises the difficult issue of determining who is liable for the damages and loss of life, as numerous persons and entities have been involved since its construction more than five decades ago,” says Marais.
This raises the question of what construction and engineering professionals can do to mitigate the risk of being held liable for natural or man-made catastrophes, irrespective of whether they relate to recent or past projects, Theodosiou says.
“One of the most cost-effective and practical solutions is professional indemnity insurance cover sufficient to cover the size of the projects in which the relevant professional is generally involved. These policies indemnify professionals from legal liability flowing from the performance of their professional duties, such as designing, constructing, repairing or maintaining infrastructure.”
Apart from the size of cover, Marais and Theodosiou say it is extremely important to determine whether these policies respond on an occurrence or a claims-made basis and the retroactive date of the policies.
They note:
* Occurrence-based policies provide cover for insured events that occur during the period of insurance, regardless of when a claim is made. An occurrence policy will respond to claims even after the policy has terminated, provided the incident or insured event occurred during the period when coverage was in force.
* Claims-made policies provide cover only when the insured event occurred on or after a specified retroactive date, if the claim is made during the period in which the policy is in force.
* The retroactive date (found in claims-made policies) refers to a date specified in the policy and allows claims to be made from events occurring in an earlier period, but after the retroactive date. Its aim is to provide continuity of cover where policies are renewed annually. It effectively excludes cover for claims that result from an insured event that occurred prior to the retroactive date, even if the claim is made while the policy is in force.
To use the bridge as an example, Marais says if it is determined it collapsed as a result of a defect that occurred at the time of its design and construction, the professionals involved would be entitled to claim under an occurrence-based professional indemnity policy, if such existed at that time.
Alternatively, they might be entitled to claim under their claims-made policy currently in force if the policy has a retroactive date which is prior to the defect, in other word1967 or earlier.
“If, however, there was no occurrence-based policy and there is no current claims-made policy (or the retroactive date on the current policy does not extend far enough back to cater for the claims), then there will be no cover available.”
These examples show the importance of paying attention to differences between occurrence and claims-made policies that could leave a gap in cover, particularly when moving from one to another. Given the variety of liabilities that can result from natural or man-made catastrophes, standard cover under professional indemnity policies can be extended:
* Public liability extension provides cover for accidental death, bodily injury, illness or disease of or to any person.
* Defects in contract works extension provides cover for costs incurred in rectifying the contract works, the design plans or specifications of such work.
* Sub-contractor extension provides cover in respect of activities or duties sub-contracted or sub-let by the professional to third parties.
“Because the loss event may occur years after construction, all policies should be safely kept so the insurers at the time can be identified,” Theodosiou advises.