Design and Build in Action (David Mosey)

(a) the PI cover may be rendered void, either in total or as regards that particular contract,

leaving the construction client relying only on the design and build contractor's net

assets; or

(b) the design and build contractor may be left uninsured as regards any liability beyond that

of reasonable skill and care, leaving the construction client unclear as to the extent of the

remaining PI cover and as to which claims or parts of claims are not covered.

No construction client and no design and build contractor will wish to do anything that

prejudices the latter's PI cover. However, in practice, it is difficult for the client to obtain full

information as to the contractor's PI insurance position and thereby to have a full and frank

negotiation. This is due to the unhelpful practice of PI insurers refusing to allow the insured to

reveal the terms of his policy to third parties. Legend has it that this would encourage spurious

claims, but logically the same is true of any other policy of insurance. So why, in relation to

other types of insurance, are similar constraints not imposed? The secretive attitude adopted by

PI insurers remains an anomaly, at odds with their own expectation that the insured must be open

in all matters and demonstrate the utmost good faith.

The fact that PI insurance is only generally available on an annually renewable basis, covering

claims made during the year in question, creates further uncertainty as to the value of the

warranty of a design and build contractor which such cover may support. Not that this is an

argument against design and build as a method of procurement, as the PI insurance available to

independent designers working on a traditionally procured project is provided on exactly the

same basis.

It is interesting to note in the context of projects under the Government's Private Finance

Initiative ("PFI") (see Chapter 14) that certain public sector clients are attempting to impose a

fitness for purpose obligationon PFI providers, which in turn will need to be imposed on the PFI

provider's design and build contractor. The PI marketplace is continually changing and insurers

will always try to underwrite the risks that they consider worth taking: as the PFI gathers

momentum, this may be another area where fitness for purpose is an insurable duty of care.