A significant design error may need to be notified to the Professional Indemnity insurer even if no client or third party has made a formal claim.
The key issue is whether the facts could reasonably be expected to give rise to a claim.
Examples include:
- an error that may require substantial rectification
- a mistake affecting structural integrity or safety
- an incorrect certification or sign-off
- an error likely to delay a project
- a design issue that may cause another party financial loss
The absence of a demand does not necessarily mean there is nothing to notify.
At the same time, engineers should not delay urgent steps required to protect people, property or prevent further damage while waiting for insurer approval. Necessary safety action should be taken, records should be preserved, and the broker or insurer should be contacted promptly.
Avoid admitting liability, agreeing to pay rectification costs or making settlement commitments until the insurer has had an opportunity to consider the matter, unless immediate action is required for safety or loss prevention.
For the legislative framework dealing with notification of facts that might later give rise to a claim, see the Insurance Contracts Act 1984, including section 40.
