Contractors All Risk vs Professional Indemnity Insurance: 5 Key Differences
Do you run a construction or renovation company? Ever been confused by contractors all risk insurance vs professional indemnity insurance? Don’t worry! We’re here to explain in simple terms what each policy type covers, how they’re different, and whether you should have both policies.
In this helpful guide on contractors all risk vs professional indemnity insurance, we explain:
- How coverage of each policy is different
- How the structure of each policy is different
- What kinds of situations/claims will trigger each policy type
- Whether you need both types of policies
- Where’s the best place to get both policies
#1. Insurance coverage
Contractors all risks insurance covers property damage, public liability, and worker injuries. Professional indemnity insurance covers liability from the professional services/advice you provide.
Contractors all risk vs professional indemnity insurance comparison | ||
| Risk | Contractors all risk insurance | Professional indemnity insurance |
| Damaging client’s property | Yes | – |
| Damaging third-party property (e.g. neighbour’s house) | Yes | – |
| Injuries to third-parties (e.g. pedestrians) | Yes | – |
| Injuries to your workers | Yes | – |
| Being sued for alleged/actual defective works | – | Yes |
| Being sued for sub-contractor errors | – | Yes |
| Being sued for negligence/errors/omissions in a joint venture | – | Yes |
What is contractors all risks insurance?
Contractors all risks is an insurance policy designed for construction and/or renovation companies. It’s designed to protect against property damage, some kinds of liability, and injuries that occur during building or renovation projects.
What is professional indemnity insurance?
Professional indemnity is an insurance policy designed to cover legal liability from faulty works. If you produced faulty work, or your clients allege you did something wrong, this policy will protect you against lawsuits targeting your company.
What’s the main difference in contractors all risk vs professional indemnity insurance?
Contractors all risk and professional indemnity protect you from different types of risks that you’ll face. Contractors all risk is designed to protect you from any property damage to your client or third-parties (e.g. neighbouring properties). It protects you from legal liability from property damage or injuries caused to third-parties. It also protects you from worker injuries.
On the other hand, professional indemnity is designed to protect you from allegations of negligence, errors and omissions, sub-contractor faults, and more. These are all extremely important covers for construction/renovation companies. If there are any faulty works in the building, it’s very common for clients to
Firms operating in this sector will very frequently make use of sub-contractors to perform certain works. If your sub-contractor makes mistakes (and let’s be frank – mistakes are common), you can be held legally liable for their errors! Having to constantly check the quality of your sub-contractor’s work is tiring and costly enough. If you end up being sued for their errors, that’s another set of massive costs that you’ll have to shoulder if you don’t have professional indemnity insurance.
#2. Insurance structure
Contractors all risks is an all-in-one package, while professional indemnity is a standalone policy
Contractors all risk is actually a combination of several different types of insurance, bundled into a single policy. The 3 major types of insurance in a contractors all risk bundle are:
- Property damage insurance
- Public liability insurance
- WICA insurance
Insurance companies created contractors all risk insurance to meet the unique needs of the construction/renovation contractor industry. If you were to purchase each types of the above insurance individually, you would end up spending far more. Buying a contractors all risk policy gives you a bundle discount, and it also makes policy administration matters (e.g. renewals and claims) easier for you.
While contractors all risk is a bundle policy, professional indemnity insurance is a standalone policy.
#3. Differences in how each policy responds to claims
To help make the distinction between contractors all risk vs professional indemnity clearer, let’s take a look at some examples that frequently occur in real life.
Situation 1: Damage to client’s property
Let’s say you run a renovation company. You win a contract to renovate a client’s kitchen. While renovating the kitchen, you accidentally damage a room that’s situated next to the kitchen. You damaged the shared wall and some piping.
In such a situation, property damage insurance coverage will kick in. CAR insurance will first pay for any engineers/surveyors/architects you need to engage to assess the damage, and to recommend repair plans. CAR insurance will then pay for the cost of the actual repairs.
(Note: to be very specific, it is the property damage section of the CAR policy that will be activated here, as it is your client’s property that has been damaged.)
Now, let’s say that despite you trying to make amends for the damage, your client remains extremely upset and dissatisfied with your work. They decide to sue you for negligence. In this situation, professional indemnity insurance will be activated to protect you from the lawsuit.
Situation 2: Damage to neighbour’s property
Take a similar example as above, where you run a renovation company. While performing drilling works on a client’s house, you accidentally drill through the wall into the neighbour’s property! The neighbor is horrified, and demands you make compensation for the damage. In such a situation, CAR insurance will kick in. CAR insurance will first pay for any engineers/surveyors/architects you need to engage to assess the damage, and to recommend repair plans. CAR insurance will then pay for the cost of the actual repairs.
(Note: to be very specific, it is the public liability section of the CAR policy that will be activated here, as it is a third-party’s property that has been damaged.)
Let’s say this hopping-mad neighbor ends up suing you for the damage you caused to their property. They file a lawsuit against you for negligence, demanding $500,000 in damages. Professional indemnity insurance will now be activated to protect you from this negligence lawsuit.
Situation 3: Worker injuries
Let’s say you’re working on a construction project. While performing building works, 5 of your workers get injured. Your injured workers suffer from broken bones, cuts, and other injuries that are common in the construction industry. The total hospital bill arrives, and you stare in disbelief at the figure: it’s a whopping $100,000 for 5 workers.
Under the Work Injury Compensation Act (WICA), you are legally required to pay for your workers’ injuries. You must pay for their medical expenses, and their lost wages while on MC.
The neighbour is horrified, and demands you make compensation for the damage. In such a situation, CAR insurance will kick in. CAR insurance will first pay for any engineers/surveyors/architects you need to engage to assess the damage, and to recommend repair plans. CAR insurance will then pay for the cost of the actual repairs.
(Note: to be very specific, it is the public liability section of the CAR policy that will be activated here, as it is a third-party’s property that has been damaged.)
Situation 4: Faulty works
You’ve just finished constructing a magnificent condominium project for your client. However, during the inspection phase, your client discovers multiple errors with your construction work. There are many cracks and holes along the project’s pavements and walls. Multiple pipes are leaking. There are even suspected issues with the foundational integrity.
Because of these errors, your client sues you for construction errors and omissions, demanding $30 million in damages.
In such a case, you must have professional indemnity insurance to protect you from the costs of the lawsuit. With a professional indemnity insurance policy, the insurer will pay for your lawyer’s fees, and any damages (up to your policy limit) that may be awarded by the courts. A contractors all risks policy will not respond in such a situation.
Real-life claim example:
Source: The Straits Times
If you had been one of the parties involved in the above project and were sued, the policy that would protect you would be professional indemnity insurance. The lawsuit centred on construction defects due to negligence and other factors. Because professional indemnity insurance protects against allegations of negligence, you would be covered. Contractors all risks insurance would not respond here, unless you had also caused, say, damage to your client’s property while building the condominium, or your workers had gotten injured in the construction process.
#4. Do you need both contractors all risks and professional indemnity insurance?
Yes. If you run a construction or renovation company, you’re going to need protection against the major risks listed in the table above. The only real way to protect yourself against these big risks is to carry both contractors all risk insurance, and professional indemnity insurance.
Many construction or renovation companies make the mistake of not carrying professional indemnity insurance. Most of such companies only focus on purchasing contractors all risks coverage (or erection all risks coverage), because these companies have seen first-hand the common types of mishaps that happen during construction/renovation projects. Damaged property, damaged tools, or worker injuries are very common in this line of work.
However, what business owners take less seriously is the risk of legal liability for faulty/defective work. In fact, this risk is potentially even more hazardous than the risk of damaging property or having injured workers. Lawsuits related to construction or renovation projects can easily cost you millions. With such massive costs involved, it’s vital that construction and renovation contractors carry a good professional indemnity policy, with the coverage managed by a knowledgeable insurance broker.
#5. Where’s the best place to get both contractors all risks and professional indemnity insurance?
Provide is the best place to get online quotes for contractors all risk insurance, and professional indemnity insurance.
When you use Provide, you’ll save up to 25% on your insurance premiums. Our online operating model creates lower overheads, so we pass every dollar saved back to you. At Provide, we take pride in understanding the unique risks that each industry and business faces, so we can recommend the best solutions to protect you from such risks.
