Insurance for a new engineering consultancy

What an engineering consultancy is actually exposed to

Claims come from a short list of recurring places, and that list drives both the cover you need and the questions an underwriter asks.

Design that does not perform. A member sized on the wrong load case, a connection detail that cannot be built as drawn, a ventilation design that fails under real conditions. The loss is almost never the fee. It is taking the work out and doing it again, plus the delay to everything that depended on it.

Assumptions made on somebody else’s information. Ground investigation data, record drawings, manufacturer performance figures. Relying on them is unavoidable; relying on them without recording what you assumed turns a defensible position into an indefensible one.

Temporary works. Short duration, high consequence, often designed under time pressure. Whether category 2 and 3 checks are done in-house or subcontracted changes both the exposure and the underwriter’s view of it.

Inspection that gets read as supervision. The appointment said periodic inspection; the client believed the works were being watched. That argument is settled by the wording of the appointment and by what your site records show.

Certificates and sign-offs. Signing something building control, a warranty provider, a purchaser or a lender will rely on extends the number of people who can bring a claim well beyond the client who paid you.

The cover a new consultancy needs

Professional indemnity is the primary cover and the one your appointments will name. It answers civil liability arising from your professional services, and it pays to defend the allegation as well as to put the loss right. On an engineering claim the defence costs are frequently the larger half, because establishing what went wrong takes experts.

Public liability covers injury and property damage arising from your activities — a struck service, finished work damaged while opening up, someone hurt on site. If you go on site at all you need it, and most principal contractors will not let you through the gate without evidence of it. Which of the two you need first depends on what you do, not your job title.

Employers’ liability becomes a legal requirement under the Employers’ Liability (Compulsory Insurance) Act 1969 the moment anyone works under your direction — a graduate engineer, a placement student, a regular subcontracted technician. The exemption for a lone director is narrower than it sounds.

What the institutions expect

There is no statutory regulator of engineers in the United Kingdom in the way there is for architects or surveyors. “Engineer” is not a protected title, registration as a Chartered Engineer is voluntary, and no minimum limit of indemnity is set across the profession.

Your institution’s code of conduct is what applies. The Institution of Civil Engineers expects members to set out the potential risks to the client in writing and, where appropriate, to obtain professional indemnity insurance covering the risks and liabilities that could arise from the work — and to say so if cover is not in place before work starts. It states no figure. Members of other institutions should check the current version of their own code, because these are revised.

So the limit is set by your contracts and your realistic worst case rather than by a rulebook: choosing a limit. Statutory duties still bite. Designers carry duties under the Construction (Design and Management) Regulations 2015, and if you take a principal designer role or work on higher-risk buildings under the dutyholder regime in the Building Regulations in England, say so on the proposal form — see the Building Safety Act and professional indemnity.

What clients and contracts require

Read the insurance clause before you agree the fee. It will name the classes of cover, set a minimum limit for each, and require professional indemnity to be maintained for a period after completion — six or twelve years is common language. Keeping a policy running for twelve years after a job is a real cost of doing it, and it belongs in the fee.

Then read the standard of care. Professional indemnity answers negligence; wording that says a design “will achieve” an outcome, or imports fitness for purpose, asks you to promise what the policy was not built to cover: standard of care versus strict liability and liability caps. Ask for a net contribution clause too, because without one joint and several liability can leave the smallest consultant in the team carrying the whole loss. Every collateral warranty you sign widens the class of people who can sue.

What an underwriter wants to see from a practice with no trading history

Who the people are. Chartered status, institution, years in the discipline, previous employers and the projects you worked on there. A chartered structural engineer with fifteen years at a recognisable consultancy is a known quantity with a new company number.

What the practice will do. The discipline split — civil, structural, geotechnical, building services, temporary works — and within it design against advisory work and inspection, including anything touching higher-risk buildings or external wall systems.

Project values, not fee values. A one-person practice can carry an exposure far larger than its income, because the loss follows the works rather than the invoice. Expect to be asked for the largest project value you expect to be involved in.

How work is checked and on what terms. Who reviews the calculations, what happens on category 3 checks, and whether you work on your own written appointment, a standard form, or whatever the client sends. The last of those is an honest answer and a poor one.

Claims, complaints and circumstances, including anything from previous employment that could attach to you personally, plus an estimate of fee income for the first twelve months. The general new-business list covers the rest.

Getting cover in place before the first job

Professional indemnity is written on a claims-made basis: the policy that answers is the one in force when the claim is made against you, or when you notify a circumstance, not the one in force when you did the work. Finish a job in March with no cover, get a letter in September, and buying a policy in October does not help you.

Set inception on or before the date you expect to begin chargeable work. The policy will normally carry a retroactive date of inception, which is right for a new company with no earlier work; anything you did as a sole trader has to be asked for and agreed. Work done for a former employer stays on their policy. Clients will want evidence of cover before you mobilise, and once you are live, structural defects surface late, so learn the rules on notifying a circumstance. More on cover before you trade.

Frequently asked questions

Does a one-person engineering consultancy need professional indemnity insurance?

In practice, yes. No statute compels it for engineers, but almost every appointment requires it, and the exposure scales with the works you design rather than with the size of your practice. A sole practitioner designing a structure carries the same claim as a large firm designing the same structure.

How much professional indemnity cover does a new engineering consultancy need?

Start with the highest limit your appointments require, then ask what a realistic worst-case claim would cost to defend and put right on the largest project you expect to work on. Because engineering losses follow the works rather than the fee, the answer is often higher than a new practice expects.

Does professional indemnity cover temporary works design?

It should, provided temporary works is named in the business activities on the schedule and the policy has not been written on a narrower description. It is the sort of activity that gets missed when a form is filled in quickly, so state it rather than relying on “structural engineering” to imply it.

My appointment says the design will achieve a stated performance. Is that covered?

Probably not, and it is worth resolving before you sign. Professional indemnity responds to a failure to exercise reasonable skill and care, not to a guarantee of outcome. A fitness for purpose obligation can leave you carrying the whole of that liability personally, with no ceiling on it.

I only do inspections and reports, not design. Do I still need cover?

Yes. A report is a professional opinion somebody relies on, and defects missed or under-reported are a steady source of claims. You will also need public liability, because inspection means being inside other people’s buildings.

Can I do occasional work for my former employer through the new company?

You can, but cover follows the entity doing the work. Anything invoiced by your new company is your new company’s exposure and has to sit within its policy description. Do not assume a former employer’s policy stretches to work you now do as a supplier to them.

Related reading: Insurance for a new business · Engineers’ PI insurance guide · Scope of duty in engineer PI claims · What you need to get a quote

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This page is general information, not advice on a specific policy.