Risk, Liability & Insurance

Question 1

What is negligence?

Answer 1

It is failure to provide the duty of care that is owed to the client
Duty of care is owed to all clients and 3rd parties using reasonable skill & care

Question 2

What is good file management?

Answer 2

A logical progression in structuring files. Helpful if there is a claim or dispute. Should include:

• Notes on checks for previous involvement, COI and resolutions
• Terms of engagement
• Copies of documents, plans, emails, site notes, calculations
• Records of key decisions
• Copies of deliverables to the client

Question 3

How would you limit liabilities in terms of engagement?

Answer 3

Liability cap
Cannot limit time due to being statute
Limit 3rd party reliance
Proportionate liability - how much they can claim on your insurance if someone ese who is liable does not have enough cover

Question 4

What are the 3 key terms that should be considered in the context of every instruction received by a surveyor?

Answer 4

• Scope of work (scope clause)
• Basis on which a fee Is calculated (fee clause)
• Liability cap (liability clause)

Question 5

What clauses should be included in a term of engagement?

Answer 5

• Scope clause
• Fee clause
• liability clause
• Third party reliance
• Exclusion of personal liability
• Jurisdiction clause

Question 6

What is tort?

Answer 6

Refers to all civil wrongs recognised by law, other than breach of contract e.g. negligence
A tort claim holds professionals to the standards of care expected from a reasonable body of professional’s peers i.e. would a reasonable competent professional act in the same way / provide the same advice

Question 7

What are the 2 ways courts approach professional’s liabilities?

Answer 7

Breach of contract
- Claim open to professional’s clients only

Negligence
- Failure of services meeting standards of care expected from professional’s peers
- Duty of care to third parties considering if damage was reasonably foreseeable as a result of defendants actions or if there is case law of similar nature
- Must ensure that any instances of allowing a third party to rely on advice are considered carefully as would then owe a duty of care. Third party may not be bound by terms of engagment which includes the liability cap

Question 8

What is required for damages to be claimed for negligence?

Answer 8

• Parties must have been reasonably aware of the potential for loss. Nature of the loss suffered must have been reasonably foreseeable

e.g. cannot let property due to defect being rectified. Can only be liable for loss of income if they were aware the property was to be let

Question 9

How are liabilities held against different types of businesses?

Answer 9

Partnership
- Can be held against as few or as many of the partners until amount his recovered

LLP / LLC
- Partners are not liable for firms debts

Inclusion of clauses to exclude personal liability are important to prevent claimants trying to bring claims against individuals

Question 10

How long do liabilities last for?

Answer 10

• Limitation period expires 6 years from date the member performed the service for breach of contract
• Where negligence, will be longer as right to claim does not occur until an actual loss is suffered
• Limitation Act allows for a claim to be brought up to 3 years after they have learnt about their entitlement to bring a claim. Can be up to 15 years (depending on the type of contract hand or deed)
• Where updated advice is given, the liability for that advice starts from the date given

Question 11

How does the length of the liability period impact insurance?

Answer 11

There must be insurance in place for when the claim is made, regardless of when services were provided
- I.e. services in 2021 require insurance to 2027
- Run off cover required where ceasing to practice
- Recommended that documentation is retained for 15 years

Question 12

What are liability caps?

Answer 12

In the contractual agreement, the maximum amount that can be claimed in damages, even if the court would have awarded more

Question 13

What is RICS guidance on liability caps?

Answer 13

Advised to use
Must not interfere with ROC requirements to act with integrity and having proper regard to standards of service
Advised to drafting within the Risk, Liability & Insurance GN 1st edition May 2022 - advised to apply also to negligence
Must be set at a reasonable level - may be challenged in court
Seek legal advice when setting caps
Referred to in terms of engagement letter
Should be set for each piece of work where multiple works under the same term of engagement or on a whole engagement in the aggregate
Be aware of risks in allowing for third parties to rely on advice
Where third parties are permitted to see advice, it should be made clear where liabilities are excluded / accepted and explicitly who the third parties are

Question 14

What is the difference between liability cap and PII limit?

Answer 14

Insurance limit sets out insurance policy, fixed on the annual PII renewal and the amount insurers will pay in any particular claim
Liability cap agreed between member & client, fixed when entering into an engagement

Question 15

What should be considered when setting the liability cap?

Answer 15

• Level of risk in engagement
• level of fees
• Limit on PII
• potential liability that may be incurred without a cap
• How effectively the cap is brought to the clients attention

Question 16

What can liability caps not exclude?

Answer 16

Some specifics in law
Cannot exclude for personal injury, death or fraud

Question 17

Can you exclude liability all together?

Answer 17

In some instances it is legal
Example would be when advice is provided without charging a fee (still need to have insurance)
Would seek legal advice

Question 18

What are the risks with permitting work to be used by third parties?

Answer 18

• Advice will be different in different jurisdictions, may not be covered by PII
• Terms of engagement may not apply to third parties including liability caps
• Communications with the client may have impacted the advice, that the third party may not have been privy to
• May be in a different position to the client which may expose to claims of a different types

Question 19

Where third parties are permitted to advice, what should be done?

Answer 19

• Should explicitly state who the third parties are
• Bound to terms of engagement as with the client
• Acknowledgement that the advice is not fresh and the effective date is not changed
• Member won’t have liability to a third party further than it would have to client
• Check advice complies with PII

Question 20

What is an engagement letter?

Answer 20

Contract between member and the client. Sets out scope of appointment and the terms governing the appointment

Question 21

What if a client only wants to use their own terms?

Answer 21

These should be considered and negotiated
Should be clear as to what terms prevail

Question 22

How can personal liability be excluded?

Answer 22

Engagement letter should state the entity that is entering into the contract
- Firms name shown on front / back of any report should be consistent with engagement letter
- Letter can include a clause that expressly prevents any of the firm’s individuals being named as a defendant in any claim brought relating to services

Question 23

What is proportionate liability?

Answer 23

Where other professionals are involved
Client may hold liable for damage against more than one professional
If one of the defendants is unable to pay, the others are required to step in and meet the judgement
Can include a restriction in the liability

Question 24

Can fire safety exclusions apply to PII?

Answer 24

Yes, they can under the RICS minimum policy wording
However, exclusions cannot apply on buildings of four storeys or fewer
Must review the impact this will have on firms business

Question 25

What level of run off cover is required?

Answer 25

£1m in the aggregate for all policies for a 6 year period
May be required for higher cover or longer if deemed adequate / appropriate

Question 26

What is the pre-action protocol required by courts prior to litigation?

Answer 26

Includes for negligence claims
Requires exchanges of correspondence and documents
Investigation of the dispute fully
Consideration of ADR before court

Question 27

What is negligence?

Answer 27

It is failure to provide the duty of care that is owed to the client
Duty of care is owed to all clients and 3rd parties using reasonable skill & care