Read time: 5 minutes
Most states and territories in Australia have mandated insurance for practising architects as part of their professional registration requirements. Architects should liaise with their state or territory-based registration board for further details.
As in any business undertaking, insurances for architects in practice are an essential consideration. Risks arise from the nature of business of an architectural practice as well as your business structure or the type of work the practice undertakes. The most common way to transfer the exposure of such risks is through the purchase of an appropriate insurance policy. It is important, however, to be aware that not all risk is transferable by insurance.
Page contents:
Insurance coverage
What follows is general information on insurance and is not specific insurance, legal or financial advice. For specific advice about what insurance cover you require for your circumstances, you should speak to your insurance broker and/or legal adviser.
A policy of insurance is a written contract between the policyholder and the insurer. Insurance policies are often in place for a specific period. At the end of that policy period, you may need to renew the policy or buy a new one. When you take out an insurance policy, part of your responsibilities includes paying a premium. Most insurance policies also include a deductible or excess, which is the amount you must pay first, before the insurer pays their share. For some types of insurance, such as professional indemnity insurance, the excess or deductible can be a substantial sum that you or your practice will have to pay.
Generally speaking, the insurer agrees that if the insured suffers a loss, or would suffer a loss in meeting the insured’s liabilities to others at law, the insurer will make good your loss to the extent that the insurance policy requires it to do so. Because the insurance contract defines the boundaries of the insurer’s obligations, a claim must be accepted by the insurer as falling within the policy conditions, having regard to any applicable policy exclusions. Also bear in mind the policy limit and the deductible or excess.
The duty of utmost good faith
The duty of utmost good faith regulates all aspects of the insurance contract and is implied into every general insurance contract in Australia pursuant to section 13 of the Insurance Contracts Act 1984 (Cth) (ICA).
Section 13 requires the insurer and the insured to act towards the other, in respect of any matter arising under or in relation to it, with the utmost good faith.
The party possessing the knowledge must disclose all material and relevant facts to the other party to the insurance contract.
The duty of disclosure
When you are applying for or renewing any insurance policy, you have a duty under section 21 of the ICA to tell the insurer anything that you know or could reasonably be expected to know (or for ‘consumer contracts’, at section 20B of the ICA, to take all reasonable care to disclose anything that you know, or could reasonably be expected to know) that may affect the insurer’s decision to insure you.
The duty of disclosure applies after proposal, and up until the insurer agrees to insure you, and remains before you renew, extend, vary or reinstate a contract of insurance.
You do not need to disclose something you don’t know, something that reduces the risk that is insured, information that is of common knowledge, information that the insurer knows (or ought to know), information that is irrelevant, or that the insurer has told you that you don’t need to disclose.
If you fail to comply with the duty of disclosure, the insurer may cancel your contract of insurance, and/or reduce the amount it will pay if you make a claim. If you fail to comply with the duty of disclosure, or you are fraudulent, the insurer may refuse to pay a claim and treat the contract of insurance as if it never existed.
If your circumstances change, it is prudent to advise your broker for a review of your insurance requirements. See Acumen note Duty to disclose liability.
Making a claim
Certain steps are always essential where a claim is likely to be made under an insurance policy:
- The insured must take prompt and reasonable precautions to prevent further loss or damage.
- If an unlawful act is suspected, eg burglary, vandalism or criminal activity, the police must be notified promptly.
- The insured must never admit liability.
- The insurance broker and insurer must be notified as soon as possible.
Insurances for architectural practices
Below is a checklist of insurances most commonly required by architectural practices.
- Commercial protection insurances (see full list in Acumen note General practice insurances)
- Directors and officers insurance
- Key person/life and disability for key persons
- Professional indemnity insurance
- Public liability insurance
- Workers compensation
- Cyber liability and privacy protection insurance (see Cyber event risk management in Acumen note General practice insurances)
For some of these insurances, there are several options available for the scope and conditions of cover.
Professional indemnity insurance is likely to be a legal requirement pursuant to your state or territory Architects Act, or other legislation applying to architectural practice. Workers compensation or equivalent in your state or territory is mandatory if you have employees. Commercial and government clients will usually insist that architects they engage have professional indemnity, workers compensation (if applicable) and often, public liability insurances.
Other insurances are discretionary, decided upon according to your circumstances, risk appetite and in the light of advice from your insurance broker.
Obtaining insurance advice
Informed advice on insurance matters can be readily obtained from an insurance broker.
Planned Cover is an insurance broker which provides specialised advice to architects on a variety of insurance needs in addition to obtaining quotations and arranging insurances.
Disclaimer
This content is provided by the Australian Institute of Architects for reference purposes and as general guidance. It does not take into account specific circumstances and should not be relied on in that way. It is not legal, financial, insurance, or other advice and you should seek independent verification or advice before relying on this content in circumstances where loss or damage may result. The Institute endeavours to publish content that is accurate at the time it is published, but does not accept responsibility for content that may or has become inaccurate over time. Using this website and content is subject to the Acumen User Licence.