This case study is an anonymised composite based on publicly reported PI claim patterns. It is not actual Apex client data and does not constitute legal or insurance advice. Names, locations and identifying details have been changed. Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority, FRN 724952.
A specialist healthcare M&E consulting engineering practice with fourteen engineers, fee income around £3.2m. Substantial portfolio of NHS and private healthcare projects. The practice is well-known in the healthcare sector and is regularly novated to D&B contractors on healthcare schemes.
The project was an NHS Trust acute-care extension building — a four-storey clinical building including theatres, a high-dependency unit and ward accommodation. The project was procured under a hybrid arrangement: the Trust appointed the firm directly during the early stages (RIBA Stages 0–3) to develop the M&E concept and outline design, with novation to the eventual D&B contractor at the conclusion of Stage 3, on the standard PPC/Healthcare novation template.
The Stage 0–3 work included substantial engagement with the Trust’s clinical estates team, infection control specialists, and the various healthcare technical memoranda (HTM) that govern healthcare M&E design — particularly HTM 03-01 (specialised ventilation), HTM 04-01 (water systems) and HTM 06-01 (electrical services). The firm’s outline design developed the M&E concept to a level consistent with Stage 3 deliverables: arrangement, principal capacities, key performance specifications, and the documented relationships with the Trust’s clinical brief.
The firm was novated to the D&B contractor at the conclusion of Stage 3. The contractor’s design team — including the novated firm — developed the design through to construction. The eventual installation was completed and commissioned and the building was occupied.
The issue arose in operation. Specifically, the theatre ventilation system did not maintain the required pressure differentials between the theatre, the preparation room and the corridor under all operational conditions. The issue was identified during routine clinical operations and required an immediate workaround (modified operational protocols) followed by remedial works. The remedial works involved modifications to the ducting arrangement and additional fan capacity, approximately £420,000 of works plus consequential disruption to clinical operations.
The diagnosis identified that the theatre ventilation arrangement, as designed at Stage 3 and developed through to construction, had a particular fan/ducting layout that did not provide sufficient resilience under the full range of operational scenarios — specifically when adjacent theatres were operating simultaneously and there was significant simultaneous draw on the ventilation infrastructure.
The question that arose was when, in the design development, this issue could and should have been identified — at Stage 3 (when the firm was the Trust’s direct consultant), or in the post-novation construction design development (when the firm was the contractor’s consultant).
The Trust claimed against the D&B contractor under the construction contract. The contractor claimed against the firm under the novated appointment. The Trust also brought a parallel claim against the firm under the collateral warranty the firm had provided to the Trust at novation, on the basis of the firm’s design work in respect of the theatre ventilation arrangement.
The two claim pathways — through the contractor and direct under the collateral warranty — engaged different contractual frameworks but the same underlying allegation against the firm. Pleaded loss against the firm was approximately £380,000.
The defence engaged the timing question — at what point in the design development could the issue reasonably have been identified — and the apportionment between the firm’s pre-novation work, the firm’s post-novation work, and the contractor’s construction execution. The case law on the responsibility of novated consultants — particularly the principles set out in Blyth & Blyth Ltd v Carillion Construction Ltd (2001) BLR 261 and the more recent line of cases addressing the so-called “novation lacuna” in design responsibility — was central. The “novation lacuna” arises when the pre-novation client (the Trust) suffers loss arising from pre-novation design work, but the consultant’s contractual relationship is now with the contractor, not the Trust; the collateral warranty in standard form is intended to bridge this lacuna, but its scope is often contested.
The matter resolved through structured negotiation at approximately £240,000 inclusive of contribution to the Trust’s and contractor’s costs.
Section 5 notification was made on receipt of the contractor’s pre-action correspondence. The wording responded subject to the firm’s £25,000 excess. The £5m limit was sufficient.
A coverage question arose on the collateral warranty treatment. The wording responded to the firm’s liability under its appointments and under collateral warranties given in the course of its professional services. The standard healthcare project structure of pre-novation appointment, post-novation appointment to contractor, and collateral warranty to client (Trust) was familiar territory for the firm’s insurer and the wording response was clean.
A second question arose on the healthcare-specific treatment. Some PI wordings contain healthcare-related sub-limits or exclusions, particularly around clinical risk and patient safety. The firm’s wording did not contain healthcare-specific exclusions; the matter was treated as standard M&E consulting engineering work.
A third question arose on the net contribution clause. The firm’s appointments included net contribution clauses limiting its liability to its fair share of the loss having regard to the contributions of other parties. The defence engaged the contribution apportionment carefully; the matter resolved at a quantum that reflected the firm’s fair share rather than a joint-and-several exposure to the total.
The matter resolved at approximately £240,000 inclusive of contribution to the Trust’s and contractor’s costs. The £25,000 excess applied.
The settlement was paid. The firm undertook a structured review of its healthcare M&E design protocol — the principal change being a more rigorous design review at the pre-novation transition point, with documented confirmation of design adequacy for the level of development achieved and explicit treatment of risks to be carried forward into the post-novation design development. The firm’s PI premium rose by approximately 26% at renewal.
Novated consultant claims on D&B projects are a structurally challenging area. First, the novation lacuna — the gap between pre-novation client suffering loss and the consultant’s post-novation contractual relationship — is real and is bridged in practice by collateral warranties; the firm should understand its exposure under the collateral warranty as well as under the post-novation appointment. Second, the pre-novation transition point is a critical design checkpoint; the firm should document the level of design development achieved and the risks to be carried forward, both for client clarity and for its own protection in any subsequent dispute. Third, net contribution clauses materially affect the realistic exposure on a multi-party project; their inclusion in appointments and collateral warranties is the most important contractual risk-management instrument available to a consulting practice. Fourth, the firm’s PI wording’s treatment of collateral warranties, novation lacuna and contribution clauses is the substance of the renewal review for healthcare and other heavily-novated practices. Fifth, the renewal narrative on the firm’s novation protocol and the documented Stage 3 transition evidence is the substance of the underwriter’s view.
For consultants substantially engaged on D&B projects with novation, the broker’s role is principally in the wording analysis (collateral warranty cover, novation-related extensions, net contribution treatment), in the engagement-template work that aligns the firm’s appointments with the wording, and in the renewal narrative around the firm’s novation protocol. On notification, the framing of a novated-consultant matter requires care to coordinate with both the contractor’s and the client’s insurers and to manage the dual exposure under the post-novation appointment and the collateral warranty.
Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email hello@apexinsurancebrokers.co.uk, or request a quotation.
Get a quote