Single Project PI Insurance

Sept 2022
Ram Garg, CFA
Founder & Chairman
Nectar Group
Gaganpreet Saluja
Manager
SWAN RE
POST-PANDEMIC INFRASTRUCTURE:
SINGLE PROJECT PI INSURANCE MARKET CAPACITY AND TREND

The views, information and content expressed here in
are those of the author and do not represent the views
of any of Nectar Group. The information provided
should not be provided as legal advice or a definitive
statement of law in any jurisdiction. For such advice, an
applicant, insured or reader should consult their own
legal counsel.
Disclaimer:

1. Post-Pandemic Infrastructure Industry
2. Single Project PI Insurance (SPPI) – key coverages and
exclusions
3. Claim examples
4. SPPI insurance underwriting
5. Market capacity and Trend
Agenda

Construction Market – Top 10 markets

Post Pandemic World – Future of Construction
“Global construction output in 2020 was US$10.7 trillion1 and we
expect this to grow by 42% or US$4.5 trillion between 2020 and 2030 to
reach US$15.2 trillion. The global construction industry is set to be a
global engine for economic growth and recovery from COVID-19.
Asia-Pacific will account for US$2.5 trillion of growth in construction
output between 2020 and 2030, up by over 50% to become a US$7.4
trillion market by 2030”
Oxford Economics Report
September 2021

 The pandemic has brought about a
new age of risk
 Industry rebounded after the initial
shockwave of shutdowns, project
cancellations and deferrals
 A big investment in infrastructure
projects post Covid-19 as
governments look to boost the
economic recovery.
 Green Investment
Post Pandemic challenges and Opportunities

 Second wave’ of inflation set to hit
construction industry
 The shortage of key equipment and
materials,
 The spike in procurement costs,
 Longer lead times,
 Schedule and cost overruns,
 Compromised supply chains,
 Skilled labor shortages,
 Ever-changing workplace protocols,
 And increased competition for limited
work
Post Pandemic challenges and Opportunities

Post Pandemic World – New Risks
“Insurers need to navigate the impact of these developments and
the potential risks posed by the industry’s drive to cut costs and shore
up Covid-impaired margins,”
Ronan Gallagher
Global Practice Group Leader
AGCS

 Increased claims costs
 Materials and labor issues
 Digitalized construction creates cyber
exposures such as follow:
– Malicious attempts to gain access to
sensitive data,
– Disruption of project site control and
associated theft,
– supply chain disruption
– Potential corruption of project
design data,
resulting in delays and ultimately
reputational risk for parties involved.
Post Pandemic World – New Risks

PI insurance protect your company from
Claims for;
– Financial loss of customer
– Arising out of any act, error or
omission
– Committed by an employee
– In the course of providing professional
advices or services to clients
What is PI Insurance?

– The Insured (Company)
– Directors & Officers
– All employees
– Consultants and contracts/sub-
contractors
– JV Partners
Who is Insured?

What is covered?
DAMAGES/
COURT
AWARDS
KEY COVERED LOSSES
SETTLEMENTS DEFENSE COST INVESTIGATION
COST

 Protect against mistakes they may make in
providing services.
 Claims can be brought in both contract and
tort and therefore the lack of contractual
obligations does not restrict the liability owed
by professionals to their clients.
 Provide essential financial protection to
Insured’s balance sheet.
Why Professional Firms need PI?

The contractor's PI limit is shared by all projects and therefore, its limit could
be eroded by one project leaving other projects uninsured.
Insurers may amend terms at renewal depending upon various non-
controllable factors and therefore, there is no guarantee that renewal terms
will meet the requirements of the contract in case of annual PI.
Any claim during policy period may dampen renewal terms and insurers
may not renew the policy.
Inconsistency in insurance program exist in case of a joint venture for the
project as their individual insurance policies ought to be different. Higher
claims dispute.
Project PI - Project Owner’s Concern with Annual PI
Cover?

Due to the issues in annual PI cover,
project owners require designing
and construction contractors to
obtain single PI insurance for a
specific period following completion
of the project.
Solution: Single Project PI Cover

Single policy for coverage more than 10 years
A dedicated limit of indemnity for the covered project.
The coverage can be designed to provide indemnity
for all professional parties associated with a project
under the one policy.
This could include the head contractor and its sub
contractors and sub consultants
This is a non-cancellable policy that provides a
robust, efficient and cost-effective solution.
This enable contractors to meet contract
requirements from their principals.
Solution: Single Project PI Cover

From: Pre-design Phase (including feasibility studies etc)
To: Final Handover (and Beyond)
BREAK-UP OF POLICY PERIOD-
 Pre- Design Phase
 Design Phase
 Construction Phase
 Maintenance Phase
 Extended Reporting Period
Policy Period in SPPI

Extensions
Covers claims related to unintentional defamation (either written
or spoken) by the Insured in the performance of Professional
Services in relation to the Project
Libel and slander
Covers costs of restoring or replacing the documents which are
destroyed or damaged
Loss of Documents
Unintentional infringement by the insured of any copyright,
trademark, registered design, patent, plagiarism or breach of
confidentiality
Intellectual Property
Covers claims made against the Principal as a result of an act
or omission of the Insured in the performance of Professional
Principal’s Indemnity

Extensions
Covers costs incurred in preparing for or attending any
investigation or inquiry into the Professional Services in relation to
the Project
Professional Inquiries
Covers losses flowing from property damage in respect of a claim
alleging act, error or omission in the performance of Professional
Consequential Loss
Covers losses that do not flow from personal injury/ property
damage in respect of a claim alleging act, error or omission in the
performance of Professional Services in relation to the Project
Pure Economic Loss
Loss Rectification
and Mitigation
Covers costs incurred by the Insured to rectify or mitigate the
effect of any act, error or omission in the performance of
Professional services in relation to the Project

Contractual liability
Employer’s liability / WC
Insolvency/bankruptcy of insured
Circumstances known at inception
Fines and penalties
Claims by financially associated parties - some insurers will cover these
claims if they emanate from a third party
Common Exclusions

A retroactive date is the earliest date
after which losses may occur and be
covered under a Claims Made liability
policy.
If the policy contains a specific
retroactive date this means that any
claims arising from an act, error or
omission occurring before that
specified date is not covered by the
policy.
What is a Retroactive Date?

SPPI - A Claim Made Basis Policy
ERP
2021-22
Policy Period
Claim Made
& Notified
to Insurer
Action
Settled
after policy
expiry
Wrongful
Act
Committed
The Policy will
only respond to
Claims made
during the
Policy Period
arising from
Wrongful Acts
committed on or
after the
Retroactive
Date.
Project Period
2015-2020
Retroactive
Date as
Inception
2025

Q. Which statement is correct about the purpose
of ERP period in SPPI policy?
A. A period before which any Wrongful Act that
occurs will not be covered
B. A period during which any Wrongful Act that
occurs will not be covered
PI Quiz -
B

A liability policy contains two geographical limits;
Territorial Limits are the geographical area
where the policy will cover the policyholder
undertaking work. If an act, error or omission
occurs outside the specified territorial limit then
there is no cover.
Jurisdictional Limits are where and under which
Court of Law a claim may be heard, where a
Jurisdictional Limit is Mauritius, the claim must
be brought in the country’s courts for policy to
response.
Territorial and Jurisdictional Limits

Q. A policyholder obtained PI policy with
Territorial scope of “Mauritius Only” from an
insurer.
The policyholder receives a claim during policy
period in relation to services rendered to a project
in Kenya.
Will the insurer pay claim under the policy?
PI Quiz -

 Where: Singapore
 A section of the viaduct that was being
constructed from the Tampines
Expressway (TPE) to the Pan-Island
Expressway (PIE) and Upper Changi
Road East collapsed at around on Jul
14, 2017
 The engineer was working for
subcontractor CPG Consultants when
he approved the design for the project
and supervised construction works.
But he failed to ensure that building
works for the project were designed in
accordance with the law, and also
authorised building works without
approval.
 Firm, director and engineer found
guilty
Real Claim Examples : Architect & Engineers

 Where: HK
 When: 2021
 New World Development will pull
down two blocks under construction
at project because lower strength
concrete was used for walls
 Industry watchers say use of wrong
concrete mix is quite common in
construction but error of this
magnitude is unprecedented

· When: 2009
· Where: Malaysia
· Billed as the pride of the state, the
RM300mil Sultan Mizan Zainal
Abidin Stadium suffered a major
blow when its roof collapsed
Real Claim Examples: Architect & Engineers

· When: Year 2016
· Where: Kolkata, India
· Part of the under-construction
flyover collapsed. 27 people were
dead and more than 80 were injured
in the incident.
· Investigation committee blamed
administrative negligence behind
the incident. The report pointed out
inconsistencies in construction, use
of poor material and approval for
faulty designs

· Where: Singapore
· The Seaview condominium filed the case in
2011 against developer; Architects Planners
& Engineers; main contractor and
engineering firm alleging defects, including
falling concrete blocks, popping swimming
pool tiles and foul odours
· $32m suit over Seaview condo defects
apparently settled in 2016

· When: Year 2009
· Where: India
· Metro pillar collapse incident, which
claimed 8 lives
· Police has charged 24 persons,
including 11 senior DMRC officials, for
negligence
· Investigation report reveals deficiency in
preparation of structural design,
especially regarding provision of less
steel in overlapping

 When: Year 2016
 Where: Mauritius
 Floréal was to host its shopping
center at the end of 2016. The
delivery of the Shopping Mall was
postponed by around a year.
 According to a press release from
the promoter, “it is in the structural
design that defects have been
detected. These anomalies require
additional work, hence the
announced delay in the delivery of
the work”.

 An architect firm was hired to
design an HVAC system in a
school.
 The design was discovered to have
a flaw that caused exhaust to be
brought back into the building.
 The resulting damages and legal
fees totaled over $1,500,000.

 An architect was retained to provide
design and construction contract
administration services for the
renovation of an historic hotel.
 Shortly after completion, a problem
developed with condensation within
the walls. Mold and mildew were
discovered in more than half the
rooms.
 An independent expert concluded that
poor construction and the mechanical
engineer’s design caused the
problems.

 An A&E firm designed a 55-unit
apartment complex.
 Three months after completion there
was water damage to 25 units totaling
$90,000.
 It was determined the A&E firm’s
window frame design was incorrect
and the firm was held responsible for
all damages.
 The A&E firm incurred over $110,000
of expenses in replacing windows and
related damage.
 The claims was settled for $950,000

SPPI Underwriting – UW Info to check
Important-
 Filled in SPPI Proposal form
 Contract Value along with Copy of Contract- Scope of
work
 Project Timeline
 Current Status of the Project
Other-
 Bill of Quantities
 Site Layout
 Geotechnical Report
 CVs of Key Personnel working on the project

SPPI Underwriting Process – Proposal form
SPPI Proposal form- questionnaire designed to
capture the all information related to the project.
Essential to fill in completely.
Scope of Work to be described as
comprehensively as possible.
Past experience of the contractor (proposed
insured) – claims, circumstances is also taken
into consideration.
Proposals form to be duly signed preferably by a
senior partner or director.

Market capacity reduced over the past three years mainly due to:
Volatility in portfolio
Too generous underwriting
Large claims in certain jurisdictions
SPPI Market Capacity – Past trend

Market capacity is coming back
– Rates have increased
– Demand is increasing
SPPI Market Capacity – Future Direction

DID: +65 65924830
Mobile: +65 8322 9962
Ram Garg, CFA

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