H + H UK Limited and SIG Offsite recently announced a new house building system – the “SIG House System” – with the impressive feature that the watertight shell of a standard 2 storey house can be completed on site within one week. This speed is achieved through the use of “Celcon Elements” – storey-high air crete panels, which are used to form the inner leaf of external walls, separating walls and internal partitions.
The system is already winning awards for innovation and is an exciting development for the market. However, new technologies of course always come with risks. For those who use new technologies, or are thinking of using them, it is important to minimise those risks. For construction professionals, one crucial part of reducing that risk is to ensure you do not inadvertently affect the cover available under your Professional Indemnity insurance.
Before we consider how to minimise your risks when using new technologies, it is worth considering an example of what those risks are. In 199 Knightsbridge Development Ltd v WSP UK Ltd  EWHC 43 (TCC) the property in question (a high value residential apartment block) was damaged by significant flooding when parts of the cold water pipework failed. The employer claimed this was the fault of its M&E engineer.
The employer and the engineer agreed on the cause of the failure, which related to a new system of pumping water around residential tower blocks. They also agreed that neither the M&E engineer, nor any other major firm of building services engineers in the UK, had at the time foreseen that this new system could lead to such pipework failures, even though it was obvious in hindsight. The engineer therefore, not surprisingly, argued it could not be negligent because no-one had been aware of the problem at the time. This is based on the principle (known as the “state of the art” or “Bolam” defence) that a professional is not negligent if he acted in accordance with a practice accepted at the time as proper by a responsible body of professionals in that area, even if that practice is later shown to be wrong.
The judge, however, disagreed and decided that the engineer was negligent for failing to appreciate the risks. The judge’s reasoning was that a professional can rely on the Bolam defence only if the body of opinion he relies upon has a logical or rational basis. If there is no logical or rational basis, and the practice turns out later to be wrong, then the professional will be negligent. In this case, even though no engineers foresaw the problem, the judge held that they should have foreseen it.
The Employer’s claim went on to fail for other reasons. However, this is a reminder that new technologies do come with a risk. If you want to use new technologies, then you will want to make sure you will still be covered by your Professional Indemnity Insurance, in the event that something does go wrong.
Professional indemnity policies – minimising the risk
So, what issues should you be aware of to ensure you do not inadvertently affect the cover available under your Professional Indemnity insurance?
Scope of your business
The underwriting basis for PI policies is the information that you provide to your broker. That will include information about the type of work you do and may include questions around whether you intend to use new and unproven technologies, whether you use off-site construction and whether you design and construct modular dwellings. It is important that you complete this information accurately, bearing in mind that this will form the basis of your policy for the entirety of the next policy period. So, think about what work you might be doing a few months down the line.
What if during the course of your policy, you start using new technologies which you did not state on your proposal form? Many policies require you to notify your insurers of any material change to the information in your proposal form, or any material alteration to the risk. Your insurers may then be entitled to amend the policy terms to reflect that new risk. If you fail to notify them, they may be entitled to refuse cover for any claims which arise out of the work in question.
The use of new technologies may well require notification to your insurers. Therefore, before you undertake such work, make sure that you have considered with your broker whether you need to notify your insurers.
PI policies contain a number of exclusions. Some which may be relevant are:
- Duty to warn
You may have a duty under your contract to warn the Employer about the use of new technology. However, Professional Indemnity policies sometimes exclude claims which are linked to such liabilities.
- Exclusions for faulty manufacturing and defective materials
PI policies normally exclude claims arising out of these. In the case of new technologies, any defects may be in the construction methodologies or the materials themselves, rather than the design.
- Indemnity limited to “state of the art defence”
Such a clause limits the indemnity that insurers provide to you. It assumes you are able to raise a “state of the art defence” (ie that the design in question is in accordance with practice generally accepted as appropriate at the time of the execution of the works having regard to the size, scope and complexity of the project). Some contracts expressly exclude such a defence, in which case you will be left with a gap in your exposure.
So, make sure to check your policy wording and your contracts to ensure that, if you do use new technologies,you are not inadvertently affecting your cover. Speak toyour broker or solicitor if you require guidance.