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 M&E consulting engineering practice with eight engineers, fee income around £2.4m, with a portfolio focused on commercial office fit-out, mixed-use refurbishment and a small but valuable food-and-beverage hospitality book.
The project was the fit-out and partial reconfiguration of a 1980s commercial office building for a single tenant on a new long lease. The tenant was a technology business with an unusually heavy IT load on the floors it was occupying — high-density desk densities, large server rooms with associated cooling demand, and meeting suites with audio-visual loads that the firm acknowledged at the outset would push the building’s existing M&E infrastructure.
The firm undertook a detailed M&E design for the fit-out, including a new central plant arrangement on the roof to provide chilled water capacity for the tenant’s enhanced cooling requirements. The cooling load calculation engaged the heat gains from the tenant’s IT load using design values derived from the tenant’s brief and the firm’s own assumptions for the diversity of the load. The plant capacity specified was a 1,400 kW chiller plant arrangement with the associated heat rejection and pumping infrastructure.
The fit-out completed and the tenant moved in. Within the first summer of operation it became apparent that the cooling plant was running at capacity for substantial periods of the working day and was unable to meet the design internal temperature on hot days. The tenant’s measured load was approximately 22% above the design value — higher peak densities than briefed, less diversity than the firm had assumed, and a hotter summer than the design assumptions had reflected.
The diagnosis was a combination of a more demanding actual load and a less generous design margin than would have been prudent for a tenant of this type. The firm’s calculations had been undertaken correctly against the design values; the design values themselves were the issue.
The tenant claimed against the developer/landlord for breach of the fit-out specification (which referenced internal temperature targets); the developer/landlord claimed against the firm. The claim was framed in negligence under Hedley Byrne and breach of the firm’s appointment. The pleaded loss was the cost of supplementing the plant arrangement to meet the actual demand — approximately £540,000 of additional plant, modified pipework runs and a re-commissioning exercise — plus an element for the tenant’s costs of the period of degraded comfort.
The defence engaged points around the tenant’s brief, the diversity assumptions the firm had reasonably made on a normal-design-process basis, and the question of whether the firm’s design margin was reasonable for the type of building and tenant.
The principle in Bolam (in its engineering application) was central — the standard of the reasonably competent M&E consulting engineer designing for the type of brief presented. The expert evidence on both sides agreed that the diversity assumption was at the optimistic end of reasonable practice but not outside the range; the design margin was at the lower end. On a fair balance the firm’s design was defensible at the margin but not comfortable.
The matter resolved at mediation at approximately £285,000 inclusive of the developer’s contribution to costs.
Section 5 notification was made on receipt of the developer’s pre-action correspondence. The wording responded subject to the firm’s £20,000 excess. The £3m limit was sufficient.
A coverage question arose on the “failure to perform to specification” exclusion. The wording in place excluded losses arising from the failure of a product or system to perform to a specified standard where the firm was the designer of the product or system. This is a familiar exclusion in M&E PI wordings and is often drafted broadly. On a careful reading, the exclusion in the firm’s wording applied to “guaranteed or warranted performance” — and the firm had not guaranteed or warranted any specific performance level. The exclusion was not engaged. On a different wording the position could have been different.
A second question arose on the subrogated waiver between the firm and the developer. The firm’s appointment included a subrogation waiver in favour of the developer in respect of certain heads of loss; this had practical consequences for how the matter was managed but did not affect the firm’s primary cover response.
The matter resolved at mediation at approximately £285,000 inclusive of the developer’s contribution to costs. The £20,000 excess applied.
The settlement was paid. The firm undertook a structured internal review of its diversity and margin assumptions on M&E design. The principal change was a more conservative approach to design margins on technology-tenant fit-outs and a documented sensitivity check on diversity assumptions at the design freeze stage. The firm’s PI premium rose by approximately 26% at renewal.
M&E specification claims have a distinctive character. First, the diversity and design margin assumptions are where claims most commonly originate; the firm’s calculations are typically correct against the assumed values, and the issue is whether the assumed values were reasonable for the type of brief. Second, the firm’s PI wording’s treatment of “failure to perform” claims is varied; the difference between a tightly drafted “guaranteed performance” exclusion and a more broadly drafted “failure to meet specification” exclusion is material and should be understood at renewal. Third, technology-tenant briefs warrant particular care; the IT load assumptions are where understated briefs and optimistic firm assumptions most commonly compound. Fourth, the firm’s documentation of the design assumption basis — what was briefed, what was assumed, why the assumption was reasonable — is the most important file evidence in a claim of this character. Fifth, the renewal disclosure on the firm’s design assumption methodology and any sensitivity-check process is the substance of an M&E underwriter’s view.
For M&E consulting engineers, the wording analysis at renewal is the single most important conversation; the variation across the market in the treatment of “failure to perform” and guaranteed-performance exclusions is wide and the implications for the cover response are large. On notification, the careful framing of an undersize specification matter — as a margin and assumption issue rather than a calculation error — has consequences for both defence and renewal. At renewal, the firm’s revised design margin methodology and the documented sensitivity-check protocol are the documents that earn the underwriter’s confidence.
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