Building Safeguards: Liability Insurance for Construction Professionals

Professional engineers and architects in the construction industry face a myriad of legal liability risks that can arise from various aspects of their work. Each decision and action taken by the professionals can have significant legal implications.

In Singapore, professional engineers and architects often act as “qualified persons” (“QP”) under the Building Control Act 1989 (“BCA”).[1] The potential legal liabilities QPs face can be both criminal and civil. Each comes with different duties and consequences.

Criminal / Regulatory Offences

QPs are imposed with duties under the BCA. QPs take on various roles in a construction project and breaches may result in criminal and regulatory offences which may cause the QPs to be liable on conviction to fines, imprisonment, or both.

Qualified Persons (Supervision) (“QP(S)”) have the duty to, among other things, take all reasonable steps and exercise due diligence in supervising and inspecting the building works to ensure that the building works are being carried out in accordance with the BCA and its related regulations.[2] In particular, a QP(S) who permits or authorises any building works the plans of which have not been approved by the BCA may be found liable under the BCA.[3]

Qualified Persons (Design) (“QP(D)”) have the duty to, among other things, take all reasonable steps and exercise due diligence to ensure that the building works are designed in accordance with the BCA and its related regulations.[4] QP(D)s also certify structural plans and design calculations and can be found liable under the BCA if such plans and designs are false in a material particular.[5]

QPs may also be exposed to liability under the Workplace Safety and Health Act 2006 (“WSHA”).[6] As with the other professionals and QPs on a construction site, QPs who, without reasonable cause, wilfully or recklessly do any act which endangers the safety or health of himself or others may be found guilty of an offence under the WSHA and be liable to a fine, imprisonment, or both.[7]

More specific regulations related to the WSHA may also apply. For instance, the Workplace Safety and Health (Construction) Regulations 2007 provide that a professional engineer appointed to design or oversee the construction of cantilevered platforms or material platforms used for loading and unloading material or equipment has the duty to take, so far as reasonably practicable, such measures as are necessary to ensure that the platform is constructed in accordance of the professional engineer who designed it, and that it is safe for its intended use when completely constructed.[8] The Workplace Safety and Health (Design for Safety) Regulations 2015 also set out the duties of the designer of a structure, including the duty to prepare a design plan that eliminates all foreseeable design risks as far as reasonably practicable.[9]

The above are just examples from a web of legislation setting out requirements applicable to professional engineers and architects working on a construction project. A common principle under the legislation is to ensure that the professionals take reasonable care and exercise due diligence when performing their duties. Such a standard is similar to that relating to the civil liabilities the professionals are exposed to.

Civil Liabilities

Depending on the contracting framework of the construction project, professional engineers and architects can be concurrently exposed to liability to different parties. A QP (or his firm) could have contracted with the developer, the main contractor, or both. Such agreements typically, at the minimum, require the professionals to exercise all reasonable skill, care and diligence in the performance of their duties, and to carry out their responsibilities in accordance with recognised professional and technical standards. Allegations of breach are often technical and require the support of independent expert witnesses skilled and experienced in the relevant technical area.

Running concurrently with the contractual obligations is the tort of negligence. The primary question under Singapore law would be whether the professionals owed a duty of care under a three-stage test formulated in the landmark Singapore Court of Appeal case of Spandeck Engineering (S) Pte Ltd v Defence Science & Technology Agency (“Spandeck”).[10] In Animal Concerns Research & Education Society v Tan Boon Kwee,[11] the clerk of works was found to have owed the building client a duty of care in the supervision of backfilling works which were found to have been negligently performed. Under Singapore law, construction professionals can also be liable for pure economic losses arising from building defects.[12]

Where there is a corresponding contractual arrangement, it is common for the professional to be found to have assumed the responsibility to perform his duty properly, and for the client to be found to have relied on the professional to perform his duty properly. On the other hand, the Singapore Courts have found it not just and reasonable to impose a common law duty on the consultant if the contractor could have chosen to make the subject of a contractual term. The reason is that it “would cut across and be inconsistent with the structure of relationships created by the contracts, into which the parties had entered”.[13] The Courts and arbitral tribunals may be slow in grafting onto the contractual relationships what may be deemed to be “parasitic duties”.[14] The Courts and arbitral tribunals may also consider the nature and relationship of the parties, such as the fact that all parties involved are sophisticated parties well able to protect their commercial interests by contractual means.[15]

Upon finding a duty of care, it will be necessary under Singapore law to consider the standard of care and whether such a standard was breached. The professionals will typically be expected to have exercised the ordinary skills of their respective areas of expertise.[16] Industry standards and practices and construction codes are often relevant. Expert evidence is often required in disputes over technical construction specifications, including whether the incident was caused by the alleged breach of duty and who else might have contributed to the damage. The Courts and arbitral tribunals may take into account any breach of statutory duties or criminal offences under the BCA, WSHA, or other related legislation, in determining whether a professional breached his civil duty of care.

Liability Insurance

There are three main types of construction and engineering liability insurance: (1) professional liability insurance; (2) employers’ liability insurance; and (3) public liability insurance.[17] Professional liability insurance covers the legal liability of construction and engineering professionals for the consequences of inadequate professional advice, such as liability arising from design, supervision, and documentation. Professional liability is generally excluded from other policies, such as public liability and construction all risks policies. Therefore, professional indemnity cover usually has to be separately procured.

Section 24 of the Architects Act 1991[18] provides that every entity licensed to supply architectural services in Singapore must be insured against liability for any breach of professional duty arising out of the conduct of its business of supplying architectural services as a direct result of any negligent act, error or omission committed by its directors, partners, managers, secretaries, or employees. Section 34 of the Professional Engineers Act 1991 sets out the same requirement applicable to entities licensed to supply professional engineering services, including civil engineering services.[19] Construction contracts may also require the contractors to take out and maintain professional indemnity insurance of types and in amounts as stipulated in the contracts.

Commercially, professional liability insurance for architects and engineers often covers the companies, directors, and employees for a defined range of relevant professional services. The policies usually contain a comprehensive definition of what constitutes the insured professional activities. For instance, Allianz’s policy wordings for Professional Indemnity Insurance Section (Engineers) and Professional Indemnity Insurance Section (Architects) define the covered “Professional Services” as the “performance” by the insured of “a contract for any professional engineering [or architectural] services, design or specification, supervision of construction, feasibility study, technical information, calculation or survey subject to any surveys being performed” by persons who are “properly qualified” as defined under the policy terms.

The policies may cover defence costs for both civil claims and statutory offences. Additional cover such as expenses incurred to manage public relations issues may also be available. Subject to the terms of each policy, the insurer may not claw back the defence costs disbursed even if the insured is eventually found guilty. However, the policies do not typically cover fines and penalties the insured is required to pay.

More specific features include professional indemnity insurers’ requirement for net contribution clauses to be included in standard form contracts for the appointment of a construction professional. Under common law, a claimant who suffered losses caused by more than one defendant may recover the whole of the loss from any one of the defendants, leaving the defendants to mount claims among themselves under sections 15 and 16 of the Civil Law Act 1909[20] to apportion the claim according to their respective responsibility. A net contribution clause limits a defendant’s (and therefore its professional indemnity insurer’s) liability to the share of the loss which would be found to be its responsibility on an apportionment, assuming that the other parties satisfied their liability to the claimant.

Crucially, professional indemnity policies are written on a claims-made basis, which means that they respond to claims that are first made against the insured during the period of the insurance. The policies also often provide that circumstances likely to give rise to a claim must be reported, and if reported within the period of insurance, will be covered by that policy regardless of when the claim may ultimately be made against the insured.

Conclusion

Professional engineers and architects navigate a complex legal landscape that requires them to exercise sufficient diligence and have reasonable foresight. To mitigate the risks they face, they should maintain comprehensive professional liability insurance. By understanding the risks, maintaining robust insurance, and adhering to professional standards, professional engineers can safeguard themselves against the potential legal liabilities that come with their heavy responsibilities. Engaging with competent legal counsel and staying informed about the evolving nature of professional liability are also essential for them to be aware of the legal pitfalls and to take steps to manage the legal risks they face.

This article is meant to provide general information only and does not contain any legal advice or create any legal relationship. The circumstances in actual cases often differ and legal advice specific to each case should be sought.

References
[1] 2020 Rev Ed.
[2] Section 9(4) of the BCA.
[3] Section 20(1) of the BCA.
[4] Section 9(1) of the BCA.
[5] Section 43A of the BCA.
[6] 2020 Rev Ed.
[7] Section 15(3) of the WSHA.
[8] Regulation 46(4) of the Workplace Safety and Health (Construction) Regulations 2007.
[9] Regulation 9(1) of the Workplace Safety and Health (Design for Safety) Regulations 2015.
[10] [2007] 4 SLR(R) 100.
[11] [2011] 2 SLR 146.
[12] Alvin Ee, “Beyond the Exclusionary Rule: Claims for Pure Economic Loss in Singapore” PLUS BLOG (14 December 2023) <https://plusblog.org/2023/12/14/beyond-the-exclusionary-rule-claims-for-pure-economic-loss-in-singapore/>
[13] Spandeck at [98].
[14] Spandeck at [101].
[15] Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324.
[16] Yeo Peng Hock Henry v Pai Lily [2001] 3 SLR(R) 555.
[17] Construction All Risks Insurance (Paul Reed QC) (Sweet & Maxwell, 1st Ed, 2014) para 1-022.
[18] 2020 Rev Ed.
[19] 2020 Rev Ed.
[20] 2020 Rev Ed.

Meet the Author

Alvin Ee, Partner, Rajah & Tann Singapore LLP

Alvin is a Partner in the Insurance & Reinsurance Practice Group of Rajah & Tann Singapore LLP. He has been instructed on a wide range of insurance-related disputes, including matters involving construction defects, trade credit losses, and commercial liabilities. He also advises on insurance corporate and regulatory issues such as licensing requirements, schemes of transfer of insurance businesses, and alternative risk transfer solutions.

Rajah & Tann Singapore LLP is a full-service law firm. It is part of the Rajah & Tann Asia network with local counsel in over 10 countries in Asia.