Q&As

What should a lender know when evaluating the professional indemnity cover of consultants, contractors and sub-contractors in a collateral warranty and what is the difference between a ‘per claim or series of claims’ basis as opposed to a ‘per occurrence or series of occurrences’ basis in a collateral warranty?

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Published on LexisPSL on 12/12/2018

The following Construction Q&A provides comprehensive and up to date legal information covering:

  • What should a lender know when evaluating the professional indemnity cover of consultants, contractors and sub-contractors in a collateral warranty and what is the difference between a ‘per claim or series of claims’ basis as opposed to a ‘per occurrence or series of occurrences’ basis in a collateral warranty?

What should a lender know when evaluating the professional indemnity cover of consultants, contractors and sub-contractors in a warranty'>collateral warranty and what is the difference between a ‘per claim or series of claims’ basis as opposed to a ‘per occurrence or series of occurrences’ basis in a collateral warranty?

Professional indemnity (PI) insurance provides cover in respect of claims for professional negligence. Many professionals are required to take out PI insurance cover and, where the underlying building contract, consultant appointment or sub-contract requires the warrantor to maintain PI insurance, it is standard that any collateral warranties provided to beneficiaries by the warrantor will also include an obligation to maintain PI insurance. See Practice Note: Professional indemnity insurance in construction projects for more detail on this type of insurance.

When evaluating the PI cover to be held under a collateral warranty, a key concern for the lender will be that the level of cover is sufficient in respect of the potential losses that could be suffered in the event of negligence by the warrantor. The PI cover should not be linked to the amount of the warrantor’s fee for carrying out their works/services (which could be substantially less than the potential amount of any losses). The lender’s project monitor or other professional advisors involved with the project would usually be best placed to advise on the risks

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