Wednesday, 23 March 2011



Clause no. 1.4 of conditions of engagement of Australian Institute of Quantity Surveyors (AIQS) has states “The Quantity Surveyor will exercise reasonable skill, care and diligence in performing its work”.

If a client get a loss because of the Quantity Surveyor (QS) fails to comply with aforesaid sub clause or similar one, QS is at a risk of being sued by the client.

Some examples for branch the sub clause;

1) Produce an unrealistic law estimate

2) Arithmetical errors in Bills of Quantities (BOQ)/Estimates

3) Certify an over payment.

The case of Commonwealth bank of Australia v Hollier, the QS was held liable to pay the Holliers, the difference between the variation that had been assessed and what the Court found should have been assessed plus interest. The QS get a fee for variation assessment is $3000 but he had to pay the damage of $70000+interest to Hollier. Actually the fee $3000 is a reduced fee while the actual fee is $30, 000; however the court did not consider any suggestion that the fee reduction entitled the QS to perform with less the reasonable care. Even advices without fee may cause for punishes by court under professional negligence.

In such situations QS may have to pay more than the consultancy fee as damage to a client. How QS can manage such big risk?

Most practicable way is use Professional Indemnity Insurance as risk sharing mechanism.

Professional Indemnity Insurance (PII)

PII is an Insurance scheme for Professional as a safe guard in their professional life to cover negligence or breach of contract. PII generally obtain by business professionals like QS who provide advice to their clients.

Some of professional Institutions like AIQS and Royal Institution of Charted Surveyors (RICS) have been recommend the PII for their members in code of professional conducts/regulations. Sub clause 3.13 in AIQS code of professional conducts states ”where holding themselves out to the public as practicing quantity surveyors, have and maintain appropriate professional liability insurance”. Also RICS members in private practice must have minimum indemnity insurance cover of £ 250,000 if their gross fee income does not exceed £100,000, and £500,000 for gross fee between £100, 000 and £200,000. Further it recommends a minimum £1,000,000 insurance if the gross fee exceeds £200,000.

Professional liability insurance should take few years beyond the end of job or service. Because every claims not arise just after the service, it may be few years later. Some laws have defined the liability of consultants beyond the completion/handover of the project.

Qatar Civil code article 219 states1 liabilities for an “unlawful act” (which may or may not include one of negligence) expire three years from the day the injured party becomes aware of the loss or fifteen years from the commission of the unlawful act, whichever is sooner.” It means contractual liability is continues for period of fifteen years.

In addition that, according to latent damage act 1986 in UK, any court proceeding claiming damages must be commenced within six years from the bench of contract or from when the damage was suffered where a claim is made in tort. Because of such reasons RICS advises run-off cover for an absolute minimum 6 years.

Further, QS should take the PII not only for cover the damage awarded, also it should sufficient to cover interest and cost of the person making the claim.

Professional indemnity insurance is a “claims made” policy. It means, it cover the claims made/notified within the policy period but not claims arising out of a branch of duty within the policy period. Because of that the insured should notify the insurer as soon as possible after aware about any event which is likely to result in a claim. Also insurer does not liable for claims which the insured knew about before the policy was agreed. It is a liability of previous insurer. Because of that insured should notified to the insurer, any event which is likely to result in a claim before the end of each policy year, especially when changing the insurers.

Liabilities which are not cover from PII

Generally a Professional indemnity policy for QS is limited to a QS profession only. It would not cover project management or dispute resolution services. If QS want to include such special services to his Professional indemnity policy, he should discuss it with the insurance company.

Also some policies may cover claims for bench of contract and some are not.

Sometimes QS have to give collateral warranties to third parties, such as future buyers or tenants. Collateral warranties are not likely to be covered by PII policies. In such cases QS need to take advice from insurance company.

In addition that PII cover the damages only to client but not damages to third parties. Because of that it’s good to take public liability insurance (PLI) which concerns the damages to third parties.

Also there is an another liability of both designers and contractors as Decennial liability which is run beyond 10 year from date of hand over in some countries like Qatar, French and Egypt. Decennial liability is not falls within the scope of professional liability insurance. In some countries like French and Egypt it is a legal requirement that designers and contractors obtain insurance against decennial liability.

When enter in to sub consultancy agreement with a lead consultant, PII and PLI may be a mandatory condition.

How to minimize risk of negligence claims for QS

Quantity Surveyors can adopt good quality management system and professional guidance in their practice to deliver their service in high standard with reasonable skill, care and diligence. Also claims can be minimized by adopting a clearly drafted Conditions of Engagement. In addition that;

· Do not take assignments which are outside the field of competence.

· Consider collateral warranty carefully and check whether it is covered by the PII policy or not.

Q & A

1) What happened if the claimant insolvent before settled the claim?

Any claim made by insured against the insurer is automatically transferred to the victim. However if insured fails to comply with policy requirements, victim may not entitled to receive damage.

2) Is the PII only for consultants?

Generally in construction industry PII is obtained by consultants, who provide advice to their customers. But contractor also have to maintain PII if he is engaged in design process. For example In JCT conditions of contract, sub clause 6.11.1 requires the contractor to take a PII.

3) If insured provide false details when enter in to insurance agreement or fails to disclose information about risk, can the insurer treat the insurance contract as void?

Yes. Insurer can. The parties to an insurance contract owe each other a duty of good faith. If the insured doesn’t enter or perform the contract in good faith, insurer not bound to indemnify the insured, even the non-disclosure is innocent. However insured still entitled to recovers the premium he has paid.

4) Insured makes a fraudulent claim, but part of the claim makes honestly. Is the insured entitled to recover the damage, at least for honest part?

No. He is not. This also comes from good faith. Sometimes it may be reinforced by the insurance policy.

5) What are the Sri Lankan Insurance companies which are provide PII?

Asian Alliance Insurance and Union Assurance


1) Grose, M. and Warren, L., 2007. Decennial liability under the Qatar civil code. [Online]. Available at:[Accessed on March 2011]

2) Poulton, W., 2010. Historical and Emerging Risks. The Building Economic, September 2010, pp.26-31

3) ?,?., ?. Professional Liability and Indemnity. Royal Institution of Charted Surveyors

4) Royal Institution of Charted Surveyors, 2011. Professional Indemnity Insurance. [Online] Available at: [Accessed on March 2011]


  1. Thank you for the article.
    What is collateral warranty?Please explain.

  2. Collateral Warranty:-

    A Collateral Warranty is an agreement between a consultant or contractor involved in the design and/or construction of a development and a third party, the beneficiary, who acquires an interest in that development.

    The beneficiary may be a purchaser or tenant of all or part of the development or a bank or other company providing finance for the development.

    The purpose of a Collateral Warranty agreement is to create a contractual link between the beneficiary and the consultant or contractor.


  3. Another informative blog… Thank you for sharing it… Best of luck for further endeavor too.


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