Australia: The insurance of project management activities

In brief - How construction project managers may minimise their risk of inadequate cover

A project manager engaged on a major construction project will often undertake a number of tasks, which can be both diverse and complex. The project manager's diverse services often result in uncertainty about insurance cover.

This uncertainty arises because major and complex construction projects generally involve comprehensive insurance programmes to manage the flow of risk and liability arising in relation to various potential losses.

Often, project management is a functional role performed by the head contractor, rather than a service contracted to a third party "professional services firm".

Cases that have explored project management as a profession

It is fairly clear, in the UK at least, that project management can be a "professional service". Bailey (Construction Law 2011, at I.1.37) observes:

"In recent years, however, there has developed a distinct profession of 'project manager', being a person who is usually versed in a number of disciplines, to take charge of contract administration."

Adriaanse (Construction Contract Law 2010, at 296) notes:

"Project management...[is] 'the overall planning, control and coordination of a project from inception to completion aimed at meeting a client's requirements in order that a project will be completed on time within authorised cost and to the required quality standards.'"

Uff (Construction Law 2013, at 140-141) observes:

"The new contract forms have given rise to a new professional known as the project manager. Although their position may be defined in a particular case, they do not fulfil a fixed role in a way that the designer or supervisor does. Project management can be a separate professional role dedicated to the achievement of cost, time and performance requirements, usually programming and monitoring techniques. This type of service will be performed under a separate contract of engagement with the employer. A project manager is also appointed by the contractor under a management contract; and the contractor's agent under a convention or construction contract is sometimes called the project manager. There is, therefore, no single definition of the role and status of the project manager."

In The Royal Brompton Hospital National Health Service Trust v Hammond [2002] EWHC 2037, the Court noted (at [23]) that it was "well known to all" that "project management is..."an emergent professional discipline"...used elsewhere, notably on energy projects and other complex projects, frequently with international aspects. ..."

What does "professional services" mean in an insurance context?

Difficult insurance questions arise on large projects with complex insurance programmes as to whether project management, either as a discipline or in respect of individual activities, is "professional".

In particular, many of the policies will involve the concept of "professional services", for example:

  • Professional Indemnity (PI) policies will cover professionals involved in claims arising from "professional services"
  • Directors and Officers (D&O), Public and Products Liability, and Contract Works policies will exclude cover for "professional services"

To what extent will the work performed by a project manager fall within the meaning of "professional services" in these policies? And how can a project manager ensure that its work is adequately covered by insurance?

The meaning of "professional services" will either be interpreted broadly or narrowly depending on the policy that is called into question.

"Professional services" covered

Courts generally give a wide interpretation to what is "professional" in PI policies, considering the term as one which probably involves "no more than advice and services of a skilful character according to an established discipline" ( GIO General Ltd v Newcastle City Council [1996] NSWSC 322).

Indeed, the fact that a PI policy has been issued to an insured can be a good indication that the services provided by the insured are "professional" ( Suncorp Metway Insurance Ltd v Landridge Pty Ltd [2005] VSCA 223; Tesco Stores Ltd v Constable [2008] EWCA Civ 362).

This means that in the context of a construction PI policy, an insurer may have difficulty proving that a project manager's services fall outside cover for not being professional.

"Professional services" excluded

D&O and general liability policies will often contain an exclusion to cover for "professional services". Accordingly, the insurer may contend that the insured was performing a professional service in order to trigger the exclusion clause, which will enable it to decline cover. The following examples show how the courts have narrowly interpreted the meaning of "professional services" in the context of a policy exclusion.

In Major Engineering Pty Ltd v CGU Insurance Limited [2011] VSCA 226, the Court held that the usual advice given about a product in a sales and supply context was not a "professional service" as:

"in supplying that product, the insured was not providing a professional service, much less professional advice, it was operating its business of manufacturing and selling equipment - the very business the policy covered it was difficult to see how selling a product, even a bespoke product, could be characterised as providing a professional service. In ordinary business parlance, there is a recognised difference between "sales" and "service"." (See also Hall v Adventure Training Systems Pty Ltd & Anor [2005] NSWSC 1079.)

In Fitzpatrick v Job & Anor [2007] WASCA 63, the Court dealt with a policy exclusion for claims "arising out of a breach of duty owed in a professional capacity". The alleged breach arose from an allegation that the insured (an engineering firm) did not "advise or inform" the purchaser claimant about the need for a barrier or safety switch. The Court held that this was not a "professional service" because recovery under the indemnity clause of the products liability insurance would be severely circumscribed, which would defeat the purposes of the insuring clause.

Pioneer v QBE [2002] NSWSC 137 is an interesting example of a situation where an insured sought to argue that building a road was "professional" to come within the policy, which was "limited to cover design and consulting/advisory services only". The insured submitted that its failure to prepare and submit a traffic control plan, decision to defer road sweeping and failure to advise and ensure that sufficient signage was erected at the site once the gravel was spread on the new surface, fell within the insured services.

The Court held that the insured's contract was to perform roadwork in accordance with the design and specifications laid down by the RTA and was, therefore, a contract for execution of design rather than the provision of design or advisory/consulting services and fell outside of cover.

However, despite the Court's willingness to recognise project management as a professional discipline, there will be instances where the project manager's actions will fall outside of the meaning of professional services due to the non-professional nature of the role carried out. This is especially the case under D&O policies where "professional services" exclusions will be given a narrow interpretation.

For example, in 470 St Kilda Road Pty Ltd v Robinson [2013] FCA 1420*, the Court held that providing a statutory declaration did not constitute "professional services" as it was part of the routine administration of the project manager's business. The Court reached this conclusion on the basis that there was no requirement or expectation that the statutory declaration involved professional assessment or would be completed by a professional person.

* Upheld on appeal [2016] FCAFC 17.

"Professional services" cover or exclusion overview

In table form, the policy cover or exclusion with respect to "professional services" is as follows:

Policy Cover Exclusion
PI Wide N/A
D&O N/A Narrow
General Liability (GL) N/A Narrow

How can project managers ensure they are appropriately covered?

In summary:

  • Carrying out "project management" as a service provided to a third party client is likely to be considered "professional" for the purposes of the coverage provided by a PI policy.
  • Administrative tasks carried out as part of the service provided to a third party client may be considered professional for the same purposes.
  • Administrative tasks carried out for a third party where the third party or another is responsible for intellectual and skilful elements of a task, are likely to be excluded from cover under a PI policy as they are not "professional".
  • Administrative project management tasks carried out by a head contractor as part of the profit component of a design and construct contract are likely to be covered by a D&O/GL policy as they are not "professional services" for the purposes of the exclusion in those policies.
  • Intellectual and skilful project management tasks carried out by a head contractor as part of the profit component of a design and construct contract (that might otherwise be carried out by a third party "professional"), may fall outside the cover in a D&O/GL policy as they are more clearly "professional" in nature (although the court will construe the "professionals services" exclusion in such a policy narrowly).

Further issues to note are that:

  • D&O/GL policies may specifically exclude types of work that might be considered professional or usually carried out by a third party (eg, a specific exclusion for surveying or quantity surveying).
  • PI policies can also specifically exclude elements of work which would ordinarily be considered "project management" (eg, costs management or contract administration).

It is clear from the above that there is no real answer to the conundrum. Activities can be both professional and not professional at the same time, depending on the type of policy in question.

One way to attempt to minimise the potential for inadequate cover is to purchase a combined PI/D&O/GL policy from one insurer. While such a product as a stand-alone policy may not be readily available, most insurers will offer all three and therefore the potential increase in premium may be viewed as a worthwhile investment if a claim ever arises. Alternatively, as the insurance market is increasingly selling project manager's professional indemnity insurance, acquiring this is probably the best (and simplest) solution to the problem.

Toby Blyth
Construction risk insurance
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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