What is Professional Indemnity Insurance, and Why Should Builders Care?

Australian builders can get insurance to protect just about most parts of their business. This includes tools and materials, tool and equipment cover, contract works, and protection against worksite hazards. But there might be one part of their business that’s not yet covered—their professional services and advice.

The construction industry faces unique risks and challenges. From residential projects to large commercial construction, even experienced professionals can make mistakes.

That’s where Professional Indemnity could be an essential addition to a builder’s insurance toolbox. Read on to learn more about Professional Indemnity insurance and why builders may need to consider this type of cover.

What is Professional Indemnity insurance?

Professional Indemnity protects businesses against losses claimed by a third party due to alleged or actual negligence in their professional services or advice. A policy may help cover defence costs (such as legal costs, claims investigation costs and expert fees) and compensation to the wronged party, up to the policy limits.

So, what does this mean for builders? A Professional Indemnity policy covers key work activities, including:*

Lodging building compliance declarations and regulated designs

A policy may protect businesses if these professional services result in financial loss caused by:

• Completion delays (i.e., loss of rent, loss of business opportunities)
• Decreases in property value caused by certain defects which are not rectifiable
• Budget overruns
• Delay costs (i.e., holding costs, interest on loans)
• Increased operating costs for buildings

Alleged breach of professional duty in the course of the insured’s building practitioner activities

This might include things such as failing to exercise reasonable care and skill when providing their services, failing to obtain necessary permits or approvals, or failing to complete work within an agreed timeframe.

Legal representation costs for investigations and defence costs

If a claim or lawsuit is brought against your business, your policy may pay some investigation costs and legal fees to help defend the business. Without valid PI cover, business owners could face significant out-of-pocket expenses and civil liability that could threaten their business.

Loss of or damage to documents

PI insurance can also cover claims related to loss of or damage to documents in your care, custody, or control.

What’s not covered?

Like any insurance policy, Professional Indemnity for builders has exclusions—activities or events that are not covered. Some exclusions may include:*

• Any provision of design or engineering services, or responsibility for them
• Certification or verification of design compliance
• Breach of warranty arising from property development
• Costs to rectify, repair, replace, complete, or remediate any building work or element
• Defective work or products
• Property development
• Acting as a building certifier
• A complete list of all exclusions can be found in the policy wording.

But I already have a Public Liability policy…

Tradie Public Liability insurance is a common type of cover for builders. It’s often required to get on-site, work as a contractor, or receive some trades licenses. But it covers completely different risks than Professional Indemnity insurance.

Public Liability insurance generally covers legal fees and compensation costs if a customer, member of the public, or a supplier claims against a business for injury or damage to their property as a result of a businesses alleged negligent business activity. These policies do not cover the cost associated with professional negligence and project delays, which are covered by Professional Indemnity insurance.

If you already have Public Liability insurance, you may still want or need a Professional Indemnity policy to ensure your business is more fully protected.

The hidden costs of going without Professional Indemnity insurance

It might be tempting to go without Professional Indemnity insurance just to save money. But the financial fallout from a single claim can be devastating, not just in terms of legal fees, but also the ripple effects on your reputation, future income, and even your ability to keep operating. Even a minor error or omission can lead to costly claims and compliance issues.

Legal costs

If a claim is brought against a business, the legal fees and associated costs can quickly add up.

Professional Indemnity is designed to meet the associated compensation payable to a third party. It also generally helps cover defence costs, which can include legal costs, investigator costs and expert fees.

Reputational damage

Money isn’t the only thing at stake. If a small business is hit with a claim and they don’t have PI insurance, word can spread fast. Clients may question their professionalism, and partners may hesitate to work with them. In the building and construction industry where trust is everything, a damaged reputation can be difficult to recover from.

Time away from work

Handling a claim isn’t just expensive – it’s time-consuming. Providing documentation and liaising with lawyers not only takes time but also can put a hole in a small business owner’s pocket. With Professional Indemnity insurance, the owner could have peace of mind knowing that they have the financial backup to help manage the costs and disruptions associated with a claim.

Professional Indemnity insurance could be a mandatory requirement

For some tradespeople, Professional Indemnity is mandatory.

As of August 2025, this includes building practitioners in the Northern Territory, specific classes of license in Queensland, specific building practitioner categories in Victoria, and building engineering contractors and building surveying contractors in Western Australia.

New South Wales will soon join this list, with Professional Indemnity insurance becoming mandatory for registered building practitioners in July 2026.

But even if not required for builders in your area, having a PI policy could still prove crucial. Complex projects, design and construction work, contract work, construction delays, and supply chain disruptions are just a few reasons why building practitioners may decide to protect themselves with Professional Indemnity insurance. This makes it an essential type of cover to consider for any industry professional who provides advice or professional services.

A policy can help protect a business and finances by shouldering the cost of professional negligence and breach of contract claims, so that they are not left out of pocket. It works alongside income protection insurance, theft cover, and tool and equipment cover to provide a well-rounded safety net for tradies.

Other obligations to consider:

• Client expectations: Business owners may find that clients and contract holders (especially government contract work) only want to work with tradespeople who can prove they have the right insurance in place. This gives the client peace of mind and also shows that the tradesperson in question takes their responsibilities and commitments seriously.
• More complex projects: Today’s projects are larger, more detailed, and often involve multiple moving parts. The bigger and more complex the project, the higher the stakes. More subcontractors, more regulations, more compliance obligations… A simple documentation error could delay an entire build, causing not just extra expenses but also contractual penalties.
• Financial protection and business continuity: A single claim for professional negligence or breach of contract can cost tens of thousands of dollars in legal fees and compensation, potentially threatening the survival of a small business. Professional Indemnity insurance can help ensure that one mistake or dispute doesn’t wipe out years of hard work and savings.

Additionally, considering a policy that includes retroactive and run-off cover options can help protect a business from claims relating to work completed before the policy started or after the business ceases trading.

Protect the business you’re building

Professional Indemnity insurance could help building practitioners manage the cost of common risks, so they can keep building across Australia. And with BizCover, busy builders can compare quotes, buy online, and get instant cover—all in minutes.

*Information current as of 27 August 2025. General in nature and subject to change. See policy wording for details or contact BizCover.