Contractual liability arises where an engineer agrees to liabilities under a contract that may be broader than the liability they would otherwise have at law.
Examples can include:
- broad indemnities
- unlimited liability
- fitness-for-purpose obligations
- responsibility for another consultant’s work
- liquidated damages
- liability for indirect or consequential loss
- guarantees of particular outcomes
Professional Indemnity Insurance does not automatically cover every liability an engineer agrees to contractually.
Some policies restrict liabilities that exist solely because the insured accepted them under a contract.
This can create an uninsured contractual exposure: the engineering firm may still be legally responsible to the client even though the PI policy does not respond to that particular obligation.
For this reason, the insurance policy and the contract should be reviewed separately. A clause can be commercially binding even where it falls outside the scope of insurance.
Engineers Australia’s Guide for design practitioners and engineers also discusses the importance of considering contractual obligations and Professional Indemnity cover together.
