Contractors All Risk vs Professional Indemnity

Insurance
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August 17, 2020

Contractors All Risk vs Professional Indemnity Insurance: 5 Key Differences

Do you run a construction or renovation company? Ever been confused by contractors all
risk insurance vs professional indemnity insurance? Don’t worry! We’re here to explain in
simple terms what each policy type covers, how they’re different, and whether you should
have both policies.

In this helpful guide on contractors all risk vs professional indemnity insurance, we

explain:

How coverage of each policy is different

How the structure of each policy is different
What kinds of situations/claims will trigger each policy type
Whether you need both types of policies
Where’s the best place to get both policies

#1. Insurance coverage

Contractors all risks insurance covers property damage, public liability, and worker
injuries. Professional indemnity insurance covers liability from the professional
services/advice you provide.

Contractors all risk vs professional indemnity insurance comparison

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 Risk Contractors all Professional
risk insurance indemnity insurance

Damaging client’s property Yes –

Damaging third-party property (e.g. Yes –

neighbour’s house)

Injuries to third-parties (e.g. Yes –

pedestrians)

Injuries to your workers Yes –

Being sued for alleged/actual defective – Yes

works

Being sued for sub-contractor errors – Yes

Being sued for – Yes

negligence/errors/omissions in a joint
venture

What is contractors all risks insurance?

Contractors all risks is an insurance policy designed for construction and/or renovation
companies. It’s designed to protect against property damage, some kinds of liability, and
injuries that occur during building or renovation projects.

What is professional indemnity insurance?

Professional indemnity is an insurance policy designed to cover legal liability from faulty
works. If you produced faulty work, or your clients allege you did something wrong, this
policy will protect you against lawsuits targeting your company.

What’s the main difference in contractors all risk vs professional indemnity

insurance?

Contractors all risk and professional indemnity protect you from different types of risks
that you’ll face. Contractors all risk is designed to protect you from any property damage
to your client or third-parties (e.g. neighbouring properties). It protects you from legal
liability from property damage or injuries caused to third-parties. It also protects you
from worker injuries.

On the other hand, professional indemnity is designed to protect you from allegations of
negligence, errors and omissions, sub-contractor faults, and more. These are all extremely
important covers for construction/renovation companies. If there are any faulty works in
the building, it’s very common for clients to

Firms operating in this sector will very frequently make use of sub-contractors to perform
certain works. If your sub-contractor makes mistakes (and let’s be frank – mistakes are
common), you can be held legally liable for their errors! Having to constantly check the

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quality of your sub-contractor’s work is tiring and costly enough. If you end up being sued
for their errors, that’s another set of massive costs that you’ll have to shoulder if you don’t
have professional indemnity insurance.

#2. Insurance structure

Contractors all risks is an all-in-one package, while professional indemnity is

a standalone policy

Contractors all risk is actually a combination of several different types of insurance,

bundled into a single policy. The 3 major types of insurance in a contractors all risk
bundle are:

1. Property damage insurance

2. Public liability insurance
3. WICA insurance

Insurance companies created contractors all risk insurance to meet the unique needs of
the construction/renovation contractor industry. If you were to purchase each types of the
above insurance individually, you would end up spending far more. Buying a contractors
all risk policy gives you a bundle discount, and it also makes policy administration
matters (e.g. renewals and claims) easier for you.

While contractors all risk is a bundle policy, professional indemnity insurance is a

standalone policy.

#3. Differences in how each policy responds to claims

To help make the distinction between contractors all risk vs professional indemnity
clearer, let’s take a look at some examples that frequently occur in real life.

Situation 1: Damage to client’s property

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Let’s say you run a renovation company. You win a contract to renovate a client’s kitchen.
While renovating the kitchen, you accidentally damage a room that’s situated next to the
kitchen. You damaged the shared wall and some piping.

In such a situation, property damage insurance coverage will kick in. CAR insurance will
first pay for any engineers/surveyors/architects you need to engage to assess the damage,
and to recommend repair plans. CAR insurance will then pay for the cost of the actual
repairs.

(Note: to be very specific, it is the property damage section of the CAR policy that will be
activated here, as it is your client’s property that has been damaged.)

Now, let’s say that despite you trying to make amends for the damage, your client remains
extremely upset and dissatisfied with your work. They decide to sue you for negligence. In
this situation, professional indemnity insurance will be activated to protect you from the
lawsuit.

Situation 2: Damage to neighbour’s property

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Take a similar example as above, where you run a renovation company. While performing
drilling works on a client’s house, you accidentally drill through the wall into the
neighbour’s property! The neighbor is horrified, and demands you make compensation
for the damage. In such a situation, CAR insurance will kick in. CAR insurance will first
pay for any engineers/surveyors/architects you need to engage to assess the damage, and
to recommend repair plans. CAR insurance will then pay for the cost of the actual repairs.

(Note: to be very specific, it is the public liability section of the CAR policy that will be
activated here, as it is a third-party’s property that has been damaged.)

Let’s say this hopping-mad neighbor ends up suing you for the damage you caused to
their property. They file a lawsuit against you for negligence, demanding $500,000 in
damages. Professional indemnity insurance will now be activated to protect you from this
negligence lawsuit.

Situation 3: Worker injuries

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Let’s say you’re working on a construction project. While performing building works, 5 of
your workers get injured. Your injured workers suffer from broken bones, cuts, and other
injuries that are common in the construction industry. The total hospital bill arrives, and
you stare in disbelief at the figure: it’s a whopping $100,000 for 5 workers.

Under the Work Injury Compensation Act (WICA), you are legally required to pay for
your workers’ injuries. You must pay for their medical expenses, and their lost wages
while on MC.

The neighbour is horrified, and demands you make compensation for the damage. In such
a situation, CAR insurance will kick in. CAR insurance will first pay for any
engineers/surveyors/architects you need to engage to assess the damage, and to
recommend repair plans. CAR insurance will then pay for the cost of the actual repairs.

(Note: to be very specific, it is the public liability section of the CAR policy that will be
activated here, as it is a third-party’s property that has been damaged.)

Situation 4: Faulty works

You’ve just finished constructing a magnificent condominium project for your client.
However, during the inspection phase, your client discovers multiple errors with your
construction work. There are many cracks and holes along the project’s pavements and
walls. Multiple pipes are leaking. There are even suspected issues with the foundational
integrity.

Because of these errors, your client sues you for construction errors and omissions,
demanding $30 million in damages.

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In such a case, you must have professional indemnity insurance to protect you from the
costs of the lawsuit. With a professional indemnity insurance policy, the insurer will pay
for your lawyer’s fees, and any damages (up to your policy limit) that may be awarded by
the courts. A contractors all risks policy will not respond in such a situation.

Real-life claim example:

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Source: The Straits Times

If you had been one of the parties involved in the above project and were sued, the policy
that would protect you would be professional indemnity insurance. The lawsuit centred
on construction defects due to negligence and other factors. Because professional
indemnity insurance protects against allegations of negligence, you would be covered.
Contractors all risks insurance would not respond here, unless you had also caused, say,
damage to your client’s property while building the condominium, or your workers had
gotten injured in the construction process.

#4. Do you need both contractors all risks and professional indemnity
insurance?

Yes. If you run a construction or renovation company, you’re going to need protection
against the major risks listed in the table above. The only real way to protect yourself
against these big risks is to carry both contractors all risk insurance, and professional
indemnity insurance.

Many construction or renovation companies make the mistake of not carrying

professional indemnity insurance. Most of such companies only focus on purchasing
contractors all risks coverage (or erection all risks coverage), because these companies
have seen first-hand the common types of mishaps that happen during
construction/renovation projects. Damaged property, damaged tools, or worker injuries
are very common in this line of work.

However, what business owners take less seriously is the risk of legal liability for
faulty/defective work. In fact, this risk is potentially even more hazardous than the risk of
damaging property or having injured workers. Lawsuits related to construction or
renovation projects can easily cost you millions. With such massive costs involved, it’s
vital that construction and renovation contractors carry a good professional indemnity
policy, with the coverage managed by a knowledgeable insurance broker.

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#5. Where’s the best place to get both contractors all risks and professional
indemnity insurance?

Provide is the best place to get online quotes for contractors all risk insurance, and
professional indemnity insurance.

When you use Provide, you’ll save up to 25% on your insurance premiums. Our online
operating model creates lower overheads, so we pass every dollar saved back to you. At
Provide, we take pride in understanding the unique risks that each industry and business
faces, so we can recommend the best solutions to protect you from such risks.

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