Claims Examples: Real-World PI Claims Against Contractors

Professional Indemnity (PI) insurance protects contractors from costly claims arising from negligence, errors, or omissions in their work. Understanding real-world claims helps contractors recognise risks and the importance of adequate coverage. This guide explores actual case studies and common claim scenarios that have resulted in significant financial losses.

Why Contractors Need PI Insurance

Contractors face substantial liability exposure. A single mistake—whether in design, project management, or technical execution—can result in claims exceeding £100,000. Real-world examples demonstrate how quickly financial ruin can occur without proper protection. PI insurance covers legal defence costs, settlements, and judgments, protecting both the contractor's business and personal assets.

Case Study 1: Structural Design Error in Residential Extension

The Scenario

A structural engineer designed a residential extension for a homeowner. The engineer failed to account for soil conditions and existing foundation limitations. Six months after completion, significant cracks appeared in the main property's walls. Structural surveys revealed the extension had destabilised the original building's foundations.

The Claim

The homeowner pursued a claim for £85,000 to cover structural repairs, temporary accommodation, and diminished property value. The claim alleged the engineer's negligence caused the damage. Investigation revealed the engineer had not conducted proper site surveys or consulted geological reports before finalising the design.

The Outcome

The contractor's PI insurance covered the full settlement, legal fees (£12,000), and investigation costs. Without insurance, the contractor would have faced personal bankruptcy. The case highlighted the critical importance of thorough site assessment before design work begins.

Key Lesson

Always conduct comprehensive site surveys and geological assessments. Document all findings and design decisions. Communicate limitations and assumptions clearly to clients in writing.

Case Study 2: Project Management Delays and Cost Overruns

The Scenario

A project manager was hired to oversee a commercial office fit-out budgeted at £500,000 with a 12-month completion timeline. Poor planning, inadequate supplier coordination, and failure to manage subcontractors resulted in a 6-month delay and cost overruns of £150,000.

The Claim

The client claimed £120,000 in losses from extended lease payments, lost business revenue, and additional financing costs. The claim alleged the project manager failed to implement proper project controls, scheduling, and risk management—core professional duties.

The Outcome

The PI insurer negotiated a settlement of £95,000, with the contractor's policy covering the full amount plus £8,000 in legal costs. The case demonstrated how project management failures directly translate to financial liability.

Key Lesson

Implement robust project management systems including detailed schedules, budget tracking, regular progress reporting, and proactive risk management. Maintain comprehensive documentation of all decisions and communications.

Case Study 3: Electrical Installation Non-Compliance

The Scenario

An electrical contractor installed wiring and systems in a new commercial building. The installation did not comply with current Building Regulations or BS 7909 standards. During a post-completion inspection, the local authority identified multiple safety violations and issued a prohibition notice, preventing the building's occupation.

The Claim

The building owner claimed £200,000 for remedial works, lost rental income during the 8-week rectification period, and reputational damage. The claim alleged the contractor's failure to comply with regulations and standards constituted professional negligence.

The Outcome

The PI insurer settled for £175,000. The case emphasised the importance of regulatory compliance and proper certification. The contractor's insurance also covered the cost of expert witnesses and legal representation during the dispute.

Key Lesson

Stay current with all relevant Building Regulations, British Standards, and industry guidelines. Ensure all work is certified and inspected by competent authorities. Maintain detailed records of compliance measures and certifications.

Case Study 4: Specification Error in Materials Selection

The Scenario

An architect specified materials for a commercial kitchen renovation without consulting the client's operational requirements or the kitchen equipment manufacturer's specifications. The specified flooring material proved incompatible with the heavy-duty kitchen environment, deteriorating rapidly and creating slip hazards.

The Claim

The restaurant owner claimed £45,000 for emergency flooring replacement, business interruption during works, and potential health and safety liability. The claim alleged the architect's failure to specify appropriate materials constituted professional negligence.

The Outcome

The PI insurer settled for £38,000, with an additional £6,000 in legal costs. The case highlighted the importance of thorough client consultation and material specification verification.

Key Lesson

Always consult clients about their specific operational requirements and environmental conditions. Verify material specifications against manufacturer recommendations and industry standards. Document all specification decisions and client consultations.

Case Study 5: Inadequate Site Supervision and Quality Control

The Scenario

A main contractor engaged subcontractors for groundworks on a residential development. Inadequate site supervision and quality control resulted in poor drainage installation. Within months, properties experienced flooding and water damage. Remedial works cost £180,000, and residents pursued claims for personal property damage.

The Claim

The developer claimed £150,000 against the main contractor for defective works, remedial costs, and resident compensation. The claim alleged the contractor failed in its duty to supervise and ensure quality standards.

The Outcome

The PI insurer covered £140,000 of the settlement, with the contractor absorbing £10,000. The case demonstrated how inadequate supervision creates significant liability exposure.

Key Lesson

Implement rigorous site supervision protocols. Conduct regular inspections and quality checks. Maintain detailed site records, photographs, and inspection reports. Establish clear quality standards and hold subcontractors accountable.

Case Study 6: Failure to Identify Existing Hazards

The Scenario

A renovation contractor failed to identify asbestos during a pre-work survey of a 1970s commercial building. During renovation works, asbestos fibres were disturbed, contaminating the site and requiring emergency evacuation and professional remediation.

The Claim

The building owner claimed £95,000 for emergency remediation, site decontamination, professional asbestos removal, and business interruption. The claim alleged the contractor's failure to conduct proper hazard identification and risk assessment constituted negligence.

The Outcome

The PI insurer settled for £88,000. The case underscored the critical importance of thorough pre-work surveys and hazard identification, particularly in older buildings.

Key Lesson

Conduct comprehensive pre-work surveys on all projects, especially older buildings. Engage qualified specialists to identify hazards including asbestos, lead, and other environmental risks. Document all findings and communicate hazards clearly to clients.

Case Study 7: Incomplete Drawings and Ambiguous Specifications

The Scenario

An architect provided incomplete construction drawings with ambiguous specifications. During construction, the contractor made reasonable interpretations that differed from the architect's intent. The resulting work required significant rework, costing £65,000 and delaying the project by 10 weeks.

The Claim

The client claimed £55,000 for rework costs and project delays. The claim alleged the architect's failure to provide complete, clear drawings and specifications constituted professional negligence.

The Outcome

The PI insurer settled for £48,000. The case highlighted the importance of comprehensive documentation and clear communication.

Key Lesson

Provide complete, detailed drawings and specifications that leave no room for misinterpretation. Include comprehensive notes and legends. Review all documentation before submission to identify gaps or ambiguities. Communicate with contractors and clients during the design phase to clarify intentions.

Case Study 8: Failure to Obtain Necessary Permissions

The Scenario

A contractor began works on a property extension without confirming that all necessary planning permissions and building regulation approvals were in place. Midway through construction, the local authority issued a stop notice. The project halted for 6 weeks while permissions were obtained retrospectively—a complex and costly process.

The Claim

The homeowner claimed £28,000 for project delays, additional financing costs, and temporary accommodation. The claim alleged the contractor's failure to verify permissions before commencing work constituted negligence.

The Outcome

The PI insurer settled for £24,000. The case demonstrated how administrative oversights create substantial liability.

Key Lesson

Always verify that all necessary permissions, approvals, and certifications are in place before commencing work. Maintain checklists and documentation confirming all approvals. Communicate permission status clearly to clients in writing.

Case Study 9: Health and Safety Failures Leading to Injury

The Scenario

A construction site manager failed to implement adequate health and safety protocols. A worker was injured when scaffolding collapsed due to improper installation and inadequate inspection. The injured worker claimed £120,000 for medical treatment, lost wages, and permanent disability.

The Claim

While the primary claim was against the scaffolding contractor, the site manager and main contractor were also named as defendants for failing to ensure safe working conditions and proper supervision.

The Outcome

The PI insurer contributed £45,000 toward the settlement, with the main contractor's general liability insurance covering additional amounts. The case highlighted how health and safety failures create multi-layered liability exposure.

Key Lesson

Implement comprehensive health and safety protocols aligned with HSE guidelines. Conduct regular safety inspections and toolbox talks. Ensure all workers receive proper training and supervision. Document all safety measures and incident reports.

Case Study 10: Inadequate Communication with Stakeholders

The Scenario

A project manager failed to maintain regular communication with the client regarding project progress, budget status, and emerging issues. When the project significantly exceeded budget and timeline, the client was shocked and pursued a claim for mismanagement.

The Claim

The client claimed £75,000 for additional costs and business disruption, alleging the project manager failed in the duty to provide regular updates and proactive issue management.

The Outcome

The PI insurer settled for £62,000. The case emphasised that professional negligence includes failures in communication and stakeholder management, not just technical errors.

Key Lesson

Establish regular communication protocols with clients. Provide monthly progress reports, budget updates, and risk assessments. Communicate emerging issues promptly and propose solutions. Document all communications in writing.

Common Claim Patterns and Risk Areas

Analysis of PI claims against contractors reveals consistent patterns:

Design and Specification Errors account for approximately 35% of claims. These include calculation errors, material misspecification, and failure to account for site conditions.

Project Management Failures represent 25% of claims, including poor scheduling, inadequate cost control, and insufficient supervision.

Regulatory Non-Compliance constitutes 20% of claims, involving Building Regulations violations, health and safety failures, and environmental breaches.

Communication Failures account for 15% of claims, including inadequate documentation, unclear specifications, and poor stakeholder engagement.

Other Issues represent 5% of claims, including professional indemnity insurance gaps and coverage disputes.

Protecting Your Contracting Business

Obtain Comprehensive PI Insurance

Ensure your policy covers your specific contracting activities, project values, and geographic scope. Review coverage limits annually as your business grows. Understand policy exclusions and conditions.

Implement Quality Systems

Establish documented procedures for design review, quality control, and project management. Conduct regular audits to ensure compliance. Train staff on quality standards and procedures.

Maintain Detailed Documentation

Document all design decisions, site surveys, client consultations, and project communications. Maintain records for at least 12 years. Use written contracts that clearly define scope, responsibilities, and limitations.

Conduct Thorough Risk Assessments

Identify potential hazards and risks before commencing work. Engage specialists for complex assessments (structural, environmental, health and safety). Communicate identified risks to clients in writing.

Ensure Regulatory Compliance

Stay current with Building Regulations, British Standards, and industry guidelines. Obtain necessary certifications and approvals before commencing work. Maintain evidence of compliance and certifications.

Prioritise Health and Safety

Implement comprehensive health and safety protocols aligned with HSE requirements. Conduct regular safety inspections and toolbox talks. Maintain incident records and near-miss reports.

Communicate Proactively

Establish regular communication with clients and stakeholders. Provide progress reports, budget updates, and risk assessments. Document all communications in writing. Address emerging issues promptly.

Conclusion

Real-world PI claims demonstrate that professional negligence can result from technical errors, management failures, communication breakdowns, or regulatory non-compliance. The financial impact extends beyond direct costs to include legal fees, investigation expenses, and reputational damage.

Contractors can significantly reduce claim exposure by obtaining comprehensive PI insurance, implementing robust quality systems, maintaining detailed documentation, conducting thorough risk assessments, ensuring regulatory compliance, prioritising health and safety, and communicating proactively with stakeholders.

Professional Indemnity insurance provides essential financial protection, but the most effective risk management strategy combines adequate insurance with strong operational practices. By learning from real-world claims and implementing preventative measures, contractors can protect their businesses and build lasting client relationships based on trust and professional excellence.

For contractors seeking to understand their specific PI insurance needs, consulting with a specialist insurance broker can help identify appropriate coverage and ensure comprehensive protection against the risks inherent in contracting work.