Basements are often an important space in a property for architects. Basements can be used for a variety of purposes, including as a living space, a workshop, cinema, gym, storage, and a whole host of others. They make use of the existing or extended footprint of a building or its immediate surroundings without affecting the above-ground landscape.
While basements are often integral to the function of a property, they can also be a source of risk. That’s why architects need to have the right insurance coverage for their basement projects. In this blog post, we’ll discuss some of the risks associated with basements and how architects can protect themselves with the right insurance policy.
Areas we will discuss
What is a basement?
Before we go on to discuss the insurance implication for architects working on basement projects, we need to have an understanding of what a basement actually is (certainly from an insurance perspective).
Very simply, a basement is a room in a house or building that is below the ground level. Whilst most basements tend to be fully below ground level, some subterranean structures also fall into the general definition of a basement for insurance purposes. A more useful description is therefore that a basement means, “any floor of a building which is partly or entirely below ground level.” We see some insurers adopting this exact definition when classifying projects for insurance purposes.
Many projects involve properties on sloping ground where one side of a room is actually above ground, with the others acting as retaining walls for the below-ground area. These projects too are viewed by insurers in the same light as what we would normally consider a basement to be, ie an entirely below-ground room.
Why are basements risky for architects?
Basements can be risky for architects because they are often an important design and functional part of the property but also pose inherent risks. For example, basements can often be prone to flooding, structural issues, general water ingress/damage, and collapse.
Claims relating to basements are often extremely costly, requiring very significant works to resolve, repair or rebuild. It is generally the case that all parties involved in a basement project are brought into the claim by the claimant regardless of their level of involvement, with their legal advisers typically adopting a ‘catch-all’ approach ensuring no potentially liable parties are left out of their legal action.
For this reason, caution is considered good practice, certainly from an insurance perspective. The architectural practice should ideally ensure that the appointment of Structural Engineers, Waterproofing experts, and other sub-contractors involved in the project is done by the client directly.
Contractually this should remove liability from the architect for these matters. Care should be taken to seek appropriate legal advice on this to carefully limit the architect’s exposure to structural and waterproofing elements of the project.
Basements are considered to be a ‘material fact’ for insurers. This means that they are something that may impact or influence an insurer’s decision-making when deciding whether to underwrite and arrange a policy of insurance.
It is important therefore when arranging your architect’s professional indemnity insurance that you disclose all projects that you have been involved in relating to basements, regardless of the size of the project. Equally, if you have any plans to be involved in basement projects in the future this should be discussed before arranging your insurance cover. Many insurers will not provide cover if basement projects exist or are planned and as such it is important to go through this in advance.
What basement information do insurers need from architects?
At John Heath insurance brokers we make sure that our proposal forms include questions relating to basement projects to ensure that you are given the opportunity to disclose these matters to Insurers. In short, the detail needed is:
- location of the project – address and postcode
- what is the nature of the project?
- is the basement below an existing structure or will it be constructed as part of an entirely new building?
- what are your contractual responsibilities on the project?
- will structural and waterproofing works be independently dealt with by experts appointed by the client?
Some Insurers now ask for detailed questionnaires on these matters. We’ve compiled our own questionnaire document to address this and this will be made available to all Architects when looking for a new quote or when renewing their existing cover.
Location, Location, Location!
Of crucial importance is the location of the basement project.
Basement projects generally are problematic but this is amplified massively where they are located in London and surrounding areas. Many Insurers will simply decline to quote completely where there is even a single project, whether historic or current, within the London area.
Beyond London, Insurers are a little more open-minded and may be willing to accept limited basement exposure.
What cover is available to Architects for basement projects?
Architects will need to ensure that their professional indemnity insurance has been arranged with full disclosure of all basement projects. The availability of PI cover for these projects is however limited currently.
Of the few Insurers that are willing to offer cover, not all will provide full cover. Instead, there are several approaches taken;
- Full cover
There are no specific limitations applied by the Insurer. This is sometimes taken where there are few projects, they are outside of London, they are all under new build properties and the project values are smaller.
- Cover with an inner aggregate limit.
In this scenario, the Insurer may offer a £250k aggregate inner limit of cover for all basement-related claims. Other claims not related to the basement projects would receive the full policy limit.
- Cover with a basement refurbishment endorsement.
This provides cover but only in respect of refurbishment works to existing basements. This may be suitable if the architect is only working on interior design projects for basements.
- Consequential loss exclusions
Some insurers apply a consequential loss exclusion which removes all cover consequent upon the negligence of the architect on these projects. This clause would need to be very carefully considered because it potentially limits cover to the rectification of the architect’s own work only – ie recreation of designs and drawings. Any other losses are likely excluded. We’d suggest legal advice and careful thought be given to the implications on a project with this sort of exclusion.
How to find the right insurance for basements
When looking for insurance for basements, John Heath are well placed to help you find the right policy for your needs. We can help Architects find the right coverage for their risk and budget. To start this process, you can complete and return a proposal form to us with full details of the basement work you have been involved with.
We have a panel of Insurers that we can approach to request cover on your behalf.
Finally, basements are a crucial space in many homes and properties. While they may be hazardous, Architects can defend themselves with the appropriate insurance coverage. We’ve discussed several of the various sorts of insurance that Architects should consider when insuring their basements in this blog post. We also discussed how to locate the right policy for your needs in further detail.