Professional indemnity insurance (PI)

Professional indemnity (PI) insurance covers a business against claims arising from errors, omissions, or breach of professional duty in the advice, design, or specification work it provides to clients. For builders, PI matters when the role extends beyond pure construction into design-and-construct, consulting, expert reporting, or owner-builder advisory work.

What PI covers (typically):

Errors in design or specification: a built-in oversight that costs the client money to rectify.
Bad advice: a recommendation that turns out to cause loss.
Misrepresentation: stating something untrue about the works or product.
Breach of duty of care: failing to exercise reasonable professional skill.
Legal costs: defending the claim, even if the claim is ultimately rejected.

What PI does NOT cover (these are separate policies):

Physical damage during construction: that’s Contract Works (CW) insurance.
Injury to third parties: that’s Public Liability insurance.
Builder warranty / home warranty claims: HBCF (NSW), DBI (VIC), QHWS (QLD).
Worker injuries: that’s workers compensation insurance.
Building defects claims under statutory warranties: typically not covered, though some PI policies have very limited extensions.

Who needs PI in a residential builder’s stack:

Design-and-construct (D&C) builders: PI is mandatory. The builder is on the hook for design as well as construction; design errors are PI territory.
Project home builders: typically a smaller PI requirement than custom D&C builders, but most carry PI as part of standard registration.
Consulting builders: builders who provide written cost estimates, building reports, or expert assessment to other parties (e.g. for property purchase due diligence) need PI for the consulting work.
Pure construction builders (architect-led, contract docs supplied): PI may not be strictly required but is increasingly demanded by sophisticated principals. Many state-licensing schemes are also tightening PI requirements.

Sum insured. Typical residential PI cover ranges:

Small builder, simple D&C work: $1 million to $2 million.
Mid-size builder, custom D&C: $2 million to $5 million.
High-end residential or multi-residential: $5 million to $10 million plus.

Sum insured should match the realistic worst-case claim, accounting for legal costs (typically 20-40% of the headline figure).

Claims-made vs claims-occurrence basis. Most PI policies are claims-made: cover applies if the claim is lodged with the insurer during the policy period, regardless of when the actual error occurred. This creates the “run-off cover” problem: when a builder retires or closes the business, prior PI work could attract a claim years later. Run-off cover (a discounted continuing policy) is the standard solution. Budget 5 to 10 years of run-off cover when winding up a building business.

Common builder errors:

No PI when doing D&C work: builder personally exposed on first design-error claim.
Wrong sum insured: too low; major claim exhausts cover and exposes the builder for the balance.
Claims-made gap on retirement: builder lets PI lapse, then receives a claim 18 months later from a job done 3 years ago. No cover.

For builders.

Confirm PI is part of your insurance stack if you do any D&C, consulting, or estimating-for-others work.
Notify your insurer of any complaint as soon as it arises. Failure to notify can void cover.
Plan for run-off cover at retirement; integrate into the business succession plan.

Also known as: PI, professional indemnity, PI insurance, E&O (Errors and Omissions) insurance.

Category: Compliance / insurance / business.

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