Conduct Ethics - PI / Risk/Insurance/Liability Flashcards
Why do we have to have Professional Indemnity cover?
RICS Rules of Conduct requires it, as per Appendix A
- Firms must ensure that all previous and current professional work is covered by adequate and appropriate professional indemnity cover that meets the standards as approved by the RICS
What is the purpose of having professional indemnity cover?
- Ensure that the firm’s clients do not suffer financial loss, which the firm cannot meet. (protects the client).
- Ensure that if the firm faces a claim, it is protected from financial loss that it cannot meet from its own resources; (protects the firm).
- Protect the insured member or firm against the consequences of its liability to pay damages to third parties for breaches of professional duty that it commits through its professional activities; (protects the individual).
How do you avoid claims of negligence?
- Never act outside of the extent of my compotence
- Never act beyond scope of services (engagement letter)
- Always refer to RICS guidance
- Maintain robust and reliable records and communications with my client
- Carry out Quality Assurance procedures.
Tell me the RICS requirements of PI cover
- insurance must be adequate and appropriate for my business, and must meet:
- ‘each and every claim’ basis or aggregate plus unlimited round the clock reinstatement basis.
- RICS minimum policy wording or can be more comprehensive. Must be at least on a Full Civil Liability Basis (widest form of cover and widens beyond usual ‘negligence’ or ‘errors and omissions’ wording) and the minimum level of indemnity based on the firms turnover in the previous year (or estimated if new firm).
Minimum levels of indemnity
£100k or less = £250k
£100k.1p to £200k = £500k
£200k and above = £1m
- Maximum levels of uninsured excess based on firms turnover in preceding year:
£10m or less = The greater of 2.5% of the sum insured, or £10k
£10m and above = No limit set.
- Be fully retroactive: Policies work on a ‘claims made basis’. Means that the policy covers claims first made against the insured during the period of insurance regardless of when the negligent act occurred. If fully retroactive date of the policy is ‘non’ then all former work carried out by the firm is covered.
- Underwritten by an RICS listed insurer (found under PI section of regulatory support on website)
- Cover for all past and present employees, including all partners, directors, members and employees. (this protects your firm for the work that has been carried out in its name and from work undertaken by those that leave the firm.
What are the fire safety exclusions within the PI requirements?
Some insurers impose a fire safety exclusion. From 01 May 2021 any exclusion will not apply to professional work relating to buildings four storeys and under.
- Firms should seek advice as to the impact of some of these exclusions in consideration of their adequacy of insurance for past and future work.
Tell me about run off cover
Ensures firms and members and clients are not exposed to financial detriment in the period following a firm ceasing to trade.
What are run off cover periods for PI cover?
- six years for contracts signed underhand
- 12 years for under deed
- RICS recommends firms asses for period of 15 years to cover long-stop period.
(as per Risk, Liability and Insurance Guidance Note Apil 2021)
What are the minimum run-off cover requirements?
- Fully retroactive
- For consumer claims (any natural person acting for purposes outside their trade , business or profession), the requirement is for a limit of £1m, in all for a period of six years from the expiry date of the policy in force at the time of cessation. RICS members may deem it adequate and appropriate for run-off on each and every claims basis and maybe paid on an annual basis providing at point of expiry a minimum limit of £1m in all for run-off period from the policy in force at time of cessation is maintained.
- For non-consumer claims run-off as required for minimum term from cessation of trading of business.
What can firms do who are unable to obtain run-off cover?
apply for coverage from the RICS’ Run-Off Pool (accessed via regulatory support section of RICS website)
Can you tell me about any applicable case law with regards to PI cover
Merrett v Babb (2001) = Key case that professional giving advice can owe a personal duty of care in tort to any recipient of that advice. Run-off cover crucial.
- Mr Babb gave mortgage valuation advice to Mrs Merrett 7 years earlier and failed to advise on settlement cracks on property.
- Babb left company
- a claim was made towards Babb’s firm who had since ceased trading
- Judge held that the liability was retained with Babb and he had a personal duty of care to Mrs Merrett.
Hart v Large (2021) = Similar to M v Babb. negligent advice from appointed professional owed personal duty of care.
- Large gave advice to Hart looking to buy a property on damp and damp-proofing which was found to be negligent.
Four critical findings in High Court’s decision:
1) Large negligent in advice given about damp/damp-proofing
2) Large negligent in failing to advise Harts not to proceed with purchase without a Professional Consultants Certificate (PCC)
3) The appropriate advice would have lead to Harts not proceeding with purchase of property
4) Harts negligent advice deprived the Harts of “advice so fundamental to whether the transaction should go ahead, that Mr Large should be held to bear the consequences of such advice not having been given”.
(RICS Home Standards Survey 2021: be clear about report, scope of inspection and include limitations, caveats and actions available to client - take all reasonable steps to ensure client understands needs for further investigation)
What is the premium of your PI typically?
- Percentage of your turnover ; usually1-5%
Additional PI requirements
All RICS firms which conduct general insurance distribution work and are required to be registered with FCA or RICS Designated Professional Body Scheme must have limit of indemnity equivalent to minimum $1.25m Euros for each and every claim and minimum $1.85m Euro in the annual aggregate.
- Must also cover for territories outside of the UK where applicable.
What is Tort?
an act or omission that gives rise to injury or harm to another and amounts to a civil wrong for which courts impose liability.
What options are available for firms who are unable to obtain PII?
Via the RICS’ Assigned Risks Pool (ARP)
What else is being done in the RICS regards PI?
RICS PII review:
- Working with government to overcome challenges in the market
- Better education on benefits of using RICS registered firm
- Working with brokers to standardise market proposals
- Ensuring regulate forms have best chance at renewal
- Amending ARP
