Most architects sign collateral warranties without reading them, and most of those warranties expand the firm’s liability beyond what its PI policy was priced to cover.
A collateral warranty is a contractual promise from a consultant or contractor to a third party — typically a funder, purchaser or tenant — that the consultant has performed and will continue to perform its primary professional appointment to the standards set out in that appointment. Warranties are a fixture of UK construction transactions and a regular source of PI claims, because they create a direct contractual route between a beneficiary and a consultant who may have no other relationship with that beneficiary. For architects, the practical question is rarely whether to sign — clients require it — but whether the warranty as drafted aligns with what the PI policy will respond to. This guide sets out the clauses that matter, the cases shaping the position, and why broker review before sign-off is now a load-bearing part of risk management.
A typical architect’s PI claim arises from a defective design, a missed coordination point, or an inspection failure on a completed project. Without a collateral warranty, only the party in direct contract with the architect — usually the developer or the building owner — has a contractual route to recover. The Contracts (Rights of Third Parties) Act 1999 created a statutory route for non-parties expressly named as beneficiaries, but most appointments are drafted to exclude its operation. Collateral warranties fill the gap.
Each warranty extends the universe of potential claimants. A scheme with a developer client may, over its life cycle, generate warranties to a senior funder, a purchaser, ten tenants, two sub-tenants, an institutional buyer, and a forward-funder. Each of those beneficiaries can in principle sue the architect for the same underlying design defect. The PI policy responds to each of those claims, but it does not provide additional capacity — multiple claims arising from the same act or omission are likely to aggregate under the AIG Europe Ltd v Woodman [2017] UKSC 18 framework, but the aggregation argument cuts both ways and is rarely resolved without active broker engagement.
Two contractual mechanics make the difference between a workable warranty and a problematic one: the net contribution clause and the no greater duty / no greater liability provision. A net contribution clause limits the architect’s liability under the warranty to the share that would be just and equitable having regard to the responsibility of other parties — typically the contractor and other consultants. Without it, the architect is jointly and severally liable for the whole loss and must chase contribution from others itself. A no greater duty / no greater liability provision aligns the warranty with the primary appointment, so the architect’s exposure under the warranty cannot exceed what would have been recoverable under the underlying contract. Without it, the warranty becomes a freestanding promise that can be construed without reference to the primary appointment’s caps, exclusions or limitation provisions.
Professional indemnity policies respond to civil liability for breach of professional duty, including breach of an express contractual obligation to perform services with reasonable skill and care. A collateral warranty claim that pleads breach of the warranty as a promise of reasonable skill and care normally falls within the insuring clause.
Three policy questions arise:
Architects Registration Board members are required to hold adequate and appropriate PI. RIBA members are subject to the RIBA Code. Neither prescribes wording, so the standard for “adequate and appropriate” is set in practice by the breadth of the firm’s warranty obligations. A practice that signs unmodified warranties for institutional funders is implicitly committing to a higher PI standard than a practice that negotiates net contribution and liability caps as standard.
Recent appellate authority has held that some collateral warranties can constitute construction contracts for the purposes of the statutory adjudication regime, which materially affects how disputes under warranties get resolved. Architects should expect more warranty disputes to be brought to adjudication, which is faster and binary, rather than to court.
A medium-sized architectural practice signs an appointment with a developer on a 35-flat residential scheme. The appointment includes net contribution, a £5m liability cap and reasonable skill and care. The developer then asks the practice to issue collateral warranties to twenty leaseholder purchasers and one funder. The standard warranty pack the developer provides drops the net contribution clause, removes the liability cap and adds an indemnity.
The practice asks its broker to review. The broker flags the indemnity as potentially outside PI cover, the missing net contribution as exposing the practice to joint and several liability, and the removed cap as inconsistent with the underlying appointment’s risk allocation. The practice negotiates the warranty back to net contribution wording, restores the £5m cap on a per-claim basis, and removes the indemnity. The developer accepts. Six years later, a leaseholder claim alleging defective sound insulation lands. The warranty as signed brings the claim within PI cover, with proportionate liability and a defined cap. Total cost to the practice across defence and settlement: £180,000, within the policy.
Bring your warranty inventory to renewal. Underwriters increasingly ask architects to confirm their standard approach to warranties — whether they use a firm-wide standard form, whether net contribution and capped liability are non-negotiable, and whether the partners have authority to depart from the standard. A practice that can demonstrate disciplined warranty governance is rewarded with sharper terms.
Specific renewal actions:
Apex’s view: We see more PI claims attributable to badly drafted warranties than to badly performed services. The market still pays out on them, but the firm pays the deductible, loses claims-free renewal credit, and absorbs the management time. We continue to advise that any practice signing more than a handful of warranties a year should have a written drafting position, a model warranty in its appointment templates, and a broker review trigger for any departure from that model. The broker review is cheap and the consequences of skipping it are not. Particularly for residential schemes within Building Safety Act scope, the warranty review should be treated as part of the project sign-off process, not as a post-completion administrative task.
Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email hello@apexinsurancebrokers.co.uk, or request a quotation.
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