Insurance + Risk Services

Insurance claims against Australian engineers continue to rise

Engineers assess risks for a living, but the cost of failing to adequately protect your practice presents unexpected problems.

Imagine you’re a self-employed civil engineer awarded a tender by a local construction firm to conduct a topographical survey and detailed design to upgrade a private road. Not only is it a fantastic project in your community, but it gives you the opportunity to build a strong working relationship with a leading local business.

It’s a relatively straightforward project in an area you know well, and with 20 years of practice behind you, not the kind of work you feel you need to bother to insure. The job goes as planned, and you move on to your next project. Then you receive a letter in the mail.

There were discrepancies encountered on site between your survey model and another surveyor’s plans at the start of construction — and it’s going to cause significant delays and increase project costs. The construction firm wants you to cover the discrepancies.

You discover that they changed the specifications after your design was completed, accounting for the differences in the models. Nevertheless, they already have their lawyers and insurers involved — and even though you are not at fault, you need to retain your own lawyer to work through the legal and procedural nightmare, with fees running into the tens of thousands of dollars.

Unfortunately, this kind of scenario is becoming all too common for Australian engineers. Professional disagreements are part of the job, but increasingly, they’re turning into costly legal disputes.

The data is in

Australia is seeing an explosion in professional indemnity claims against engineers.

A recent report by University of Melbourne researchers found that the residential construction boom in Australia’s major cities since 2008 has seen a “corresponding increase in noncompliant work that has led to significant latent defect cases and protracted disputes”.

Not only has there been a rise in the quantity and severity of professional insurance claims, but we are seeing increased regulatory scrutiny, meaning that even highly experienced and less risk-averse engineers need to consider their liability.

State government and regulators are also reviewing indemnity insurance in the sector. In New South Wales, new regulations came into effect on 1 July 2021 to ensure that those who control design and construction risks, such as engineers, are held responsible for their work (with mandatory insurance required from 1 July 2022).

Law firm Clyde & Co warned that, in Queensland, “the engineering industry should be prepared for a number of compliance audits and investigations into non-compliance with the Professional Engineers Act 2002 (Qld) to be conducted”.

While there is a particular focus on construction due to the cladding crisis, the legislation is broad and covers structural, civil, mechanical, geotechnical, fire safety and electrical engineering.

Engineers are also finding themselves as collateral damage in projects where they only played a small part. Claims recently brought in Australian tribunals include an engineer sued by neighbouring property owners in a dispute over damage arising from construction work, and an engineer added as a defendant in a claim where they were not directly liable, meaning they were required to obtain legal advice to rectify their position.

In these kinds of circumstances, professional indemnity insurance offers protection from legal expenses that can amount to hundreds of thousands of dollars.

Risk management

A common misconception in the industry is that small operators will be covered under a project, or they simply will not be exposed to liability claims.

As we’ve seen, this is far from the case. Claims can arise over a range of issues, including allegations of professional negligence — whether founded or not — project management issues, and design and certification disputes.

Without professional indemnity insurance, you are personally liable for any claims of breaches of duty of care, and the legal costs associated with any disputes. In many places, not having insurance also means that you are in breach of government regulations, putting your entire practice at risk.

Expert advice

While insurance claims are rising, many professionals are finding it difficult to obtain professional indemnity cover. Some providers are skirting around the market by providing cover that excludes critical items such as cladding.

Over the past few years, a number of insurers have exited the professional indemnity market due to the increase in claims, meaning that engineers may be offered cover that fails to meet legal requirements, posing licencing issues and potentially opening up the engineer to legal claims.

Just as professionals wouldn’t engage an electrical engineer to design a suspension bridge, insurance is also a specialised field. EngInsure, an affiliate of Engineers Australia, is an engineering insurance specialist with the expertise to help engineers navigate the complex requirements.

EngInsure has access to indemnity markets not available to the public, as well as existing relationships with a range of insurers who specialise in specific engineering business activities.

No matter the type of job, or how many years you’ve been practicing, operating uninsured in today’s market is simply not worth the risk.

EngInsure are here to support you with important PI Insurance advice and solutions to reach the best possible outcome for your business. For assistance, please get in touch with one of our specialists:

T: 1300 854 251

This article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228 License Number: 229092 trading as EngInsure Insurance & Risk Services for further information or refer to our website.