Lessons from Large Engineering Claims: What Went Wrong and How to Avoid It
Over the past decade, Australia has witnessed several significant insurance claims involving engineering firms, primarily due to structural failures, natural disasters, and professional negligence. Between 2017 and 2021, according to Engineers Australia, professional indemnity insurance claims in the engineering sector surged by 125%.
Large insurance claims in the engineering sector often stem from design and construction errors, regulatory non-compliance, and rushed project timelines. Australia's exposure to natural disasters significantly heightens the risk of infrastructure damage and associated liabilities.
What Went Wrong
While specific claim amounts are often confidential, the following cases stand out due to their impact and the legal precedents they set:
● Christmas Storms Insurance Claims (Queensland, New South Wales, Victoria, 2023–2024)
Thousands of claims totalling AUD 1.6 billion were filed in the wake of the devastation caused by these storms, impacting residential and commercial properties, utilities, and public infrastructures. While engineering firms are not typically directly liable for damage caused by natural disasters, such large-scale climate events often result in substantial claims related to engineering assessments, design flaws, and construction defects.
● Opal Tower Structural Defects (Sydney, 2018–2024)
The Opal Tower structural cracking led to significant financial repercussions, over $30 million in costs related to rectification, alternative accommodation for residents, and legal fees. The liability involved design engineers, builders, and certifiers for structural failures.
● Grenfell Tower Fire (London, June 2017)
The cladding compliance issues that emerged across Australia following the tragic Grenfell Tower fire in London sparked a sweeping national response. These issues have led to major insurance claims, regulatory reform, and legal actions, particularly involving engineering consultants, building certifiers, architects, and developers.
Anticipating the Unknown
These cases highlight the complexities and major financial implications of insurance claims involving engineering firms in Australia. They also underscore the importance of clear contractual relationships and comprehensive insurance coverage for all parties involved. The legal landscape is evolving as a result, and that in turn is impacting liability and risk management in the engineering and construction sectors. To mitigate these risks, engineering firms in Australia need several critical types of insurance coverage, including:
● Professional Indemnity Insurance: Covers claims for financial loss arising from professional negligence or errors in design, omissions, and consultancy services. The policy should feature civil liability coverage, flexible reporting periods for claims made after the project is finished, and retroactive dates (to include earlier dates).
● Construction & Contract Works Insurance: Provides end-to-end coverage for physical loss or damage to construction projects, including materials and equipment. Depending on the project, you may need cover for existing structures, hired in plant, or extend cover for display homes.
● Public and Product Liability Insurance: Protects against claims for injury or property damage caused to third parties during construction activities or when you return on site during a defects or maintenance period. The policy should extend to a firm’s subcontractors and consultants.
● Directors & Officers (D&O) Liability Insurance: Safeguards the personal wealth of directors and officers against claims arising from their corporate decisions.
Summing It Up
Certainly, incidents like the Opal Tower Structural Defects, the Grenfell Tower Fire, and extensive damage caused by natural disasters have inflicted serious harm on communities and forced the government and businesses to rethink how to better prevent and safeguard against the risk posed by these incidents.
Knightcorp Insurance Brokers has a wealth of expertise and experience understanding the complexities and liabilities inherent in engineering projects, and can proactively assist in ensuring your firm has the right coverage and risk management strategies in place.
DISCLAIMER: This information is provided to assist you in understanding the risks, implications, and common considerations for your industry. It does not constitute advice and is not complete. Please contact Knightcorp Insurance Brokers for further information.
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