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Professional Indemnity Insurance and Risk Management

Society is becoming ever more litigious, and in this current climate any party who suffers loss or injury will have little or no hesitation in pursuing a claim if they feel aggrieved. When a client feels that their expectations have not been met, then this can lead to conflict. Consultants need to understand their clients needs and identify realistic parameters, as sometimes the Clients expectations may be unachievable.

Claims are more likely to arise as a result of the perception of failure to deliver a certain level of service. The professionals perception of service as a provider may be somewhat different from their clients perceived requirements. It is therefore important that the brief and your terms of business are discussed with the client, so both parties know what is expected (further information on terms of business is available from this website).

It is good practice to make a note of calls you have made during your working day, the advice given and agreed verbal actions. By incorporating this into your daily routine you not only help reduce the level of risk you face, but it can assist with calculating your hourly rates, expenses and other associated bills. This will benefit you in two direct ways - you will be able to identify areas that take up unproductive time, and you will be in a better position to justify your bill should a client query your costings.

A transparent paper trail, from beginning to end, is another important point. Good housekeeping will enable you to defend yourself against the cut and thrust of the private sector, which in turn may help prevent a claim being made against you by a disgruntled client. Remember, not every claim made is a valid one.

Terms of business

One of the most useful aides to this is the use of formal terms of business, as this can provide a framework to address the expectations of both parties by detailing the nature of the duties required and timescales of delivery. This seems obvious but it is often overlooked in the rush to obtain work and then execute it. Within these documents it is prudent if the professional can;

  • clearly define the extent of the duties to be undertaken
  • seek to limit the extent of duties to avoid absolutes i.e. to avoid warranting what will be achieved, or that a certain result will be delivered
  • seek to include a proviso that you will use reasonable skill and care
  • try to avoid indemnity clauses for anything other than matters arising out of their negligence
  • seek to exclude liability for Consequential Loss
  • seek to include clear limitations of liability, including details of when the period of liability expires
  • specify which law is applicable to the agreement (i.e. English / Scottish law)
    Most Professional Indemnity policies will exclude losses arising from Contractual Liability where the professional has entered into an agreement in which their liability, or duty of care, is more onerous than in the absence of the agreement. The insurance policy will only provide cover for losses which arise from the duty of care owed under Common Law or Statute, hence the need to be clear about these issues in an appointment document.

Net Contribution Clause

If the professional is undertaking a project as part of a team they should seek the addition of a Net Contribution Clause. This would limit their liability to that share of the loss as their responsibility bore to it, i.e. if they were 50% to blame, they could only be held liable for 50% of the loss. A clause like this can be found in the standard British Property Federation form of Warranty - please advise your broker/insurer.

Defensible Files

The best advice in the world can be given by a professional to their Client, but in the event of a dispute the professional will need to be able to prove it. Therefore, professionals should ensure that;

  • properly completed, dated and signed file notes are kept. Post-it notes are wonderful for quick messages but are not a replacement for accurate file notes.
  • any amendments to instructions should be confirmed in writing. If the client refuses to do this the professional should do so, detailing the amendments and their understanding of what is required of them.
  • all meetings relating to the work should be minuted and copies of the minutes distributed to all relevant parties.
  • all relevant paperwork should be maintained on file (preferably in chronological order).

Never provide a copy of the Professional Indemnity policy to Clients. The Insurance Broker or Insurer should be able to provide relevant proof of cover which should be satisfactory for the Clients requirements. After all, the policy is a contract between the professional and their Insurers, why should anyone else be able to see what it contains?

Claims made against planning consultants

Whilst planning is considered to be a low-risk profession members can still find themselves the subject of a claim and, whilst not all claims are valid, you could still face the additional work, interruption and uncertainty if a claim is made. Below are examples of the type of claims, both successful and otherwise, that have been brought against planning consultants;

  • consultant appointed midway through the planning process and, under commercial pressure, used work previously done by another Consultant who discovered this and sued for unauthorised use of their work
  • consultant sued for alleged negligence for allowing a project to go both over time and over budget, despite client changing their specifications regularly.
  • alleged negligent handling of the planning process for a substantial redevelopment.
  • alleged defamation of character made by a consultant.
  • consultant engaged, without a formal written contract, to provide general planning and building regulation advice. Planning permission gained but construction was not in accordance with the consent. Client claiming negligence of both the Planner and Surveyor involved
  • consultant requested to ascertain whether an earlier planning permission could be implemented after work on aproject was stopped because contractor demolished too much of the original structure. Work was recommencedand later subsequently halted again. Client claiming for extra expenses incurred.
  • consultant received complaints from a Clients neighbour regarding the nature of work being undertaken to adjacent property. There were concerns over whether the work could have the potential to cause subsidence damage in the nearby area.

For further information please refer to the RTPIs PII regulations

The RTPI is grateful to Perkins Slade for contributing to this article. Perkins Slade Ltd are the RTPI's Preferred Insurance Broker.