We recently sat down with Miller’s Construction Professional Indemnity Lead, Adam Power, to better understand why Owner’s Protective Professional Indemnity (OPPI) Insurance should be on construction project owners’ and developers’ radars.
What is Owner’s Protective Professional Indemnity Insurance?
Owner’s Protective Professional Indemnity (OPPI) Insurance is an insurance policy purchased by the owner or developer of a construction project. The policy indemnifies the owner/developer for damages arising from the negligent act, error or omission of their appointed contractor and construction professionals. It will also provide cover against third party claims made against the project owner/developer for breach of their own professional duty (e.g., for in-house design).
An OPPI policy is designed to sit around the professional indemnity (PI) insurance policies of the contractor and construction professionals. The trigger for coverage under the OPPI policy is the indemnification or payment of a claim under the contractor’s and construction professional’s PI policy, noting that OPPI insurers will expect the contractor and construction professionals engaged in the project to carry a suitable amount of PI cover depending on the complexity of the project. If those policies are eroded or exhausted by claims, the OPPI policy is designed to provide indemnity to the project owner/ developer.
It is important here to note that the OPPI policy is not accessible to the contractors or construction professionals working on the project – the cover is reserved for the insured project owner/developer only.
How does OPPI relate to other PI policies?
OPPI insurance is not a substitute for contractors, designers and other professional firms having their own PI insurance. Owners and developers should continue to transfer responsibility to those other firms engaged in the project, and ensure that they evidence having suitable PI insurance in their own right. Limits of indemnity held by those contractors, designers and professional services firms should properly reflect the complexity and value of the project. Project owners and developers would also be well served exploring whether there are any non-standard exclusions or limitations to those policies that could materially affect the associated firm being able to call on those policies.
What are the benefits of having OPPI?
The construction PI insurance market continues to present issues for buyers; and contractors and construction professionals frequently face problems securing suitable levels of PI insurance. It is often the case that limits of indemnity available under their annual policies are aggregated, meaning that the limit is shared across all their projects. This aggregation of limit may leave a project owner or developer exposed if PI policies held by contractors and construction professionals are depleted by claims on other projects. OPPI insurance can provide the project owner/developer with peace of mind that there is enhanced PI cover exclusively reserved for them on their own project.
How has Miller helped clients by placing an OPPI policy on their behalf?
Miller recently acted for the developer of a large hotel and entertainment precinct project, where the client was dissatisfied with the levels of PI cover held by a number of the professionals engaged on the project and under pressure from financiers to evidence increased sums insured. Those professionals were not able to obtain additional cover and we were tasked to find an alternative solution.
Working closely with the client, we helped them to compile a detailed risk prospectus for insurers and ultimately placed a multi-year project specific OPPI policy for them with a leading Lloyd’s syndicate. This enabled the client to provide suitable comfort to investors, allaying concerns regarding the limited amount of cover provided by the professionals and helped the project to proceed unimpeded.
To discuss whether an OPPI policy may benefit your project, of any other PI related matters, please do get in touch.