Ethics - Professional Indemnity Insurance (PII) & Negligence Flashcards
What RICS document related to PII?
RICS UK Professional Indemnity Insurance Requirements, Version 10 (effective from 01 July 2024)
RICS Risk, Liability & Insurance, Practice Information, 1st Edition, effective from 1st April 2021
What is the aim or purpose of PII?
Aim/ Purposes of having professional indemnity insurance (PII) are to:
* ensure that if the firm faces a claim, it is protected from financial loss that it cannot meet from its own resources
* 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 and
* ensure that the firm’s clients do not suffer financial loss, which the firm cannot meet
What does the Risk, Liability and Insurance document tell us?
Details courts approach to professional liabilities and liability caps
What is PII?
Insurance to cover the cost of compensating clients for loss or damage resulting from negligent services or advice provided by a business or an individual.
(PII must be provided by a RICS Listed Insurer; a ‘claims made’ basis.)
What are the minimum covers for PII based on firm’s turnover?
Under £100,000 = £250,000
between £100,001 - £200,000 = £500,000
Over £200,001 = £1,000,000
What is meant by the term ‘max uninsured excess’?
The part of each claim the firm must pay itself.
What is the max uninsured excess ?
Limit of indemnity:
£10,000,000 or less = max uninsured excess the greater of 2.5% of the sum insured or £10,000
£10,000,001 and above = max uninsured excess No set limit
The uninsured excess may also apply to Defence Costs.
What if a firm cannot obtain PII (or run-off cover)?
apply to use Assigned Risk Pool (ARP)
What is an Assigned Risk Pool (ARP)?
Short term cover when regulated member who are unable to gain cover elsewhere
What is the requirment for an RICS regulated firm and stops trading
must have a minimum £1,000,000 (1 million) of run-off PII cover; this is required for a 6-years consumer claims
What type of insurance should you take out when closing down a practice?
Run-off cover (ROC) – risk management to closed firms - provides cover for claims arising after a firm or individual has ceased trading.
What should you do in case of a potential claim on your PII?
Notify the firm’s PII insurer as soon as possible.
What are the RICS requirements for PII cover?
- Liability caps - as a way to manage the risk of their professional work, and to ensure that there is a fair allocation of risk and reward between members and their clients
- Third party reliance - make clear in their contracts/engagement terms that their advice may only be relied upon by the named client
- Fire safety claims – out in respect of buildings 5 storeys and above, or buildings over 18 metres
- Provided by RICS Listed insurer
What is a liability cap?
A contractual agreement that a client can only make a claim up to the amount agreed.
Liability Caps – what constitutes ‘reasonable’?
Reasonableness in Liability Cap?
- Risk level
- Level of fee
- PII limit and premium
- Potential liability without a cap
- Type of client
- Contractual wording, ideally noted in the contract and in any covering engagement letter
Difference between liability caps and a firm’s PII limit?
Liability caps - contractual agreement between the client and the firm i.e., the maximum amount that would be paid to the client in the event of a claim.
PII Limit- maximum amount that the insurer will pay out for a claim
[Best practice: to agree liability caps below the PII limit]
How do PII cover relate to locums?
Locums (another professional who is appointed to ‘stand in’ for s ole practitioner or a sole director) need to be covered for any work undertaken whilst a sole practitioner is unavailable
What is a Locum Agreement?
Ensures cover in the case of long-term absence, death, holidays or unavoidable events.
What support does the RICS offer if no access to professional indemnity insurance (PII) protection?
Member Support Service (not insurance) - service is for: UK members who are not required to have their own PII under Rule 9 of the Rules of Conduct for Firms, UK retired members, trainee surveyors, members on part-time concessionary rates and students.
Assigned Risk Pool - Short term cover when regulated member who are unable to gain cover elsewhere
What PII cover does your employer have?
VOA Does not have PII cover
VOA - crown takes the risk
VOA is a special regulated firm - SPONRO. We hold a letter from HMRC indemnifying if anything goes wrong with our work - it is unlimited. This meets the RICS requirements.
As an RICS member, what cover do you typically need?
- PII insurance - Professional indemnity insurance covers financial loss, personal injury and property damage resulting from your negligent act or error while you’re working for a client.
- Public Liability insurance - Public liability insurance is there to protect you if a member of the public is injured (or their property is damaged) and your business is faced with a compensation claim as a result. It can cover you when you’re working at client sites or in public.
- Employers Liability Insurance - Employers’ liability insurance covers you and your business for compensation costs if an employee becomes ill or injured as a result of the work they do for you. It’s legally required of all businesses with one or more employees.
- Building Insurance (if you own your own premises)
What is negligence?
Negligence is a ‘tort’ (侵害他人權利或利益的行為). A professional fail to provide reasonable skill and care for a client.
What is the different between negligence and breach of duty?
When that duty is breached, negligence is the result.
A duty of care is a legal obligation one person owes to another to exercise reasonable caution when doing something that could foreseeably cause harm.
https://www.forbes.com/advisor/legal/personal-injury/breach-of-duty/
There is some case law relevant to PII and discusses the Liability of individuals. What is the name of the case law?
Merrett v Babb
Hart v Large
Tell me about Merrett v Babb
Valation surveyor conducted mortage valaution for a lender and his firm closed due to bankruptcy with no run-off cover. The house purchaser successfully claim against the surveyor personally
Mr Babb was an employed surveyor who was sued personally following the bankruptcy of his employer. The firm’s PII was cancelled and the claimant sued Mr Babb, rather than his bankrupt employer.
Tell me about Hart v Large
Mr Large was negligent in advice (i) the damp issue and failing to advice not proceed the purchase without a Consultant’s Certificate and (iii) failing to recommend a full building survey.
Take away: (i) must ensure have suitable experience before taking on an instruction; (ii) a surveyor must take reasonable steps to follow that trail, which may include recommending further investigations; (iii) RICS member should ask the owner/occupier if they have any guarantees/warranties for any repair and alteration work carried out where practical
https://www.rics.org/news-insights/rics-home-survey-standard-and-hart-v-large
How do you avoid negligence?
- Clear ToE
- Ensure competent to undertake work
- Make detailed notes and take photos.
- Stay up-to-date with market trends and legislative changes.
- Cap the professional liability excess on PII policy in ToE
What act is relevant to Negligence?
Limitation Act 1980 - The legal action brought by the claimant may have been started outside the time limits imposed by the Limitation Act 1980
Building safety Act 2022 - https://www.highspeedtraining.co.uk/hub/building-safety-act/
PII around Fire safety?
During 2019 fire safety insurance cover was removed from the professional indemnity insurance market following the Grenfell Disaster, followed an increase in insurance claims with insurers applying blanket fire safety exclusions.
- Many surveying firms were unable to obtain fire safety cover leaving them exposed on previously completed instructions and non protected for future work
During 2020/21 the RICS worked with insurers to restrict blanket fire safety exclusions.
The RICS agreed with insurers in May 2021 that fire safety exclusions could be used however these would not apply to work on properties with four or fewer storeys above ground level.
- This is contained in the agreement that all insurers sign if they want to participate in the RICS insurance market.
- Cover for completion of EWS1 forms remains excluded from RICS’ policy wording
- limited protection for professionals completing EWS1 assessments on a case-by-case basis at insurers’ commercial discretion.
Prior to 2024, RICS has not published separate PII Requirements Documents for the UK and of Ireland.
From 1 July 2024, RICS requires listed insurers to provide PII cover for fire safety claims for professional services carried out in respect of buildings 5 storeys and above, or buildings over 18 metres, on the following basis:
- Negligent act, error, or omission (rather than the full civil liability basis);
- Applicable to professional services undertaken on or after 1 July 2024, meaning insurers will not assume liability for historic work before this date; and
- Cover can be in the aggregate, with defence costs included in the limit of indemnity and the with the uninsured excess applicable to defence costs.
When the Courts are assessing claims for negligence on behalf of
valuers it is often the case that the incorrect valuation has
resulted from a mis-measurement of the property or land.
What is the tolerance or acceptable margin of
error which the Courts will accept?
Accordingly the margin of error permitted by the Courts is only 1%
1% for measurment
What is the tolerance or acceptable margin of
error which the Courts will accept for valuations?
Case law precedent refers to a margin of between 10% and 15% depending upon the facts.
Singer and Friedlander v John D Wood & Co [1977] 243 EG 212 states that the margin of error can be 10% either side of a figure that can be said to be the right figure that a competent careful and experienced valuer arrives at after making all the necessary enquiries and paying property regard to the state of the market.
In exceptional circumstances, the permissible margin could be extended to about 15% or a little more either way.
What are the different legal bases for claims?
Some claims (by clients) are based on (i) breach of contract and (ii) others (by clients or third parties) are based on tort
What is the time limit of different type of legal action the Limitation Act 1980?
Claim on contract – Time limits – Limitation Act 1980 s.5 - 6 years from the breach of the contractual obligation
Claim on tort – Time limits – (a) The basic period under Limitation Act 1980, section 2 - 6 years from the date the claimant first suffers measurable loss or damage or (b) The latent damage rule under Section 14A - 3 years from the date the claimant gained knowledge of the material facts of the damage caused by the negligence. Subject to The overriding time limit under Section 14B(1) – 15 years from the date of the last alleged negligent act or omission
Why 15 years?
6 years is the original - Increase 3 years – 9 years – acknowledge the time to deal with
https://www.isurv.com/info/1367/negligence_in_valuations_and_surveys/9911/negligence_defences/3
What is the difference between a contract/negligence claim?
- Breach of contract can only be claimed by parties to contract.
- Third party can claim negligence even if they were not part of the contract if the professional fell short of the duty of care expected
