Let us discuss in detail why engineers need professional indemnity cover and how it protects them against claims of inadequate work and negligent actions made by a third party.
Nature of Profession
Whenever an engineer is hired, he is required to apply his professional expertise. He is bound to give numerous pieces of advice to the client and participate in the decision-making process of the company. The recommendation of engineers is very crucial for the infrastructure growth of an organization.
However, they might cause financial losses to their client upon giving bad or abortive advice. Their advice might result in delays, and an organization might suffer a huge loss. Hence, they can be held liable to compensate their clients. The E&O insurance protects them by neutralizing their liabilities to the third party.
Contractual Obligation
The e&o insurance might be required to form a contract between the engineer and the other party. Therefore, it helps them in winning the quotations since it assures the third party to cover losses incurred due to the mistake or wrongful advice of the engineer. Furthermore, professional indemnity insurance is also valuable for protecting the asset from being liquidated in order to reimburse the third party's losses.
Various states in India and across the globe require the engineers to obtain a professional indemnity or E&O policy in order to work in that particular state. It may be imposed as a condition in order to consider them as licensed engineers. Moreover, the professional association mandates their member to get the optimum coverage of PI Insurance.
Lawsuit Defense
Generally, an employer is held vicariously liable for every wrongful act done by his employee during the course of employment. However, in the case of an independent contractor, there is no liability that exists for the employer for the wrongful act of the contractor. Hence, a lawsuit may arise or institute against an engineer for the wrongful act committed by him. He might be held liable for a wrong engineering advice during his course of employment.
The error and omission of insurance under this circumstance help him by offsetting the cost of the appointment of a lawyer to argue the lawsuit. During construction activities, a lawsuit for nuisance may institute, and the engineer might be compelled to participate in the litigation process. Hence, the professional indemnity policy helps in indemnifying the engineer from his liabilities.
A situation may arise where the engineer might not be at fault but may require cooperating in the investigation process and be compelled to bear the cost. Here, the insurance policy is activated in order to indemnify the engineer.
Conclusion
It is vital for professional engineers to note that error and omission insurance only covers civil liability. Therefore, the loss will be covered under professional indemnity cover if the act is committed under civil wrongs, such as tort, civil breach, or trust. However, if the commission of an act turns into a criminal wrongdoing, the insurance company will no longer be liable to indemnify the insured. Hence, the measurement of the act of commission needs to be determined while claiming PI insurance.
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