Project management services – liability for

Liabilities of architects providing project-management services

One issue that is of concern to architects acting as project managers is whether their professional indemnity (PI) insurance covers the services and possible liabilities involved in carrying out such activities.

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Liability and insurance

Most PI insurance covers liability arising from acts and errors or omissions for architects undertaking both project management and construction management, where the architect is paid a fee for design consultancy and project coordination or advice. See Acumen note Professional indemnity insurance basics. 

Where the architect accepts an appointment or provides a service outside the 'normal' role of the architect in managing a project, it is strongly recommended that the PI insurer is notified. Such notification should include details of the role and the responsibilities associated with the appointment. The insurer may look to extend the professional business noted on the policy to include project management or any additional services provided.

PI insurance policies will not normally provide cover for claims arising from the following:

• The provision by the architect of inadequate, incorrect or misleading financial representations concerning the final cost (or part thereof) of the project.
• The project exceeding a previously established financial limit agreed by the architect.
• Representations concerning profit or return on equity from the project.
• The architect's failure to maintain or arrange financing insurance, suretyship or bonds in connection with the project.
• The bankruptcy, liquidation or insolvency of any of the parties involved in the project.
• The use or repair of any real or personal property, or ownership, rental, occupation, deemed occupation, leasing, maintenance or operation of any real or personal property.
• The bodily injury, sickness, disease or death, sustained in the course of their employment by any person, arising out of their employment by the insured, under either a contract of service or an apprenticeship with the insured.

In addition to the above, professional-indemnity policies for the architectural profession usually exclude cover for claims against an architect acting in the capacity of real-estate developer, builder or manufacturer.

Architects should be particularly careful to ensure that their activities are not confused at any time with those of a contractor, and they should ensure that they do not become involved in actually constructing the works. A standard PI policy will exclude cover for any construction work, it may also exclude cover for the design work if a claim is made in relation to both the design and construction of a project. It is essential for any architects involved in both design and construction to take out a Design & Construction (D&C) policy. This will not exclude the design if a claim is made in relation to both the design and construction on a project. Note a D&C policy does not provide cover for the actual construction. In additional to a D&C policy, architects involved in construction will also need separate insurance for the construction.

Finally, architects should be aware that if they are reliant upon advice provided by other professionals, they will - unless those professionals have been retained by the client - be responsible directly to the client for any claims arising out of the provision of such advice or information.

In this regard, the architect is in the same position as the architect who engages subconsultants on a project. In other words, the architect will be liable to the client directly for any negligence on the part of those advisers who are retained by the architect on the client's behalf. It is important that the architect’s PI policy provides cover for their vicarious liability of the subconsultants that are engaged.

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