Risk, Liability & Insurance Flashcards
What is negligence?
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
What is good file management?
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
How would you limit liabilities in terms of engagement?
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
What are the 3 key terms that should be considered in the context of every instruction received by a surveyor?
- Scope of work (scope clause)
- Basis on which a fee Is calculated (fee clause)
- Liability cap (liability clause)
What clauses should be included in a term of engagement?
- Scope clause
- Fee clause
- liability clause
- Third party reliance
- Exclusion of personal liability
- Jurisdiction clause
What is tort?
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
What are the 2 ways courts approach professional’s liabilities?
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
What is required for damages to be claimed for negligence?
- 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
How are liabilities held against different types of businesses?
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
How long do liabilities last for?
- 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
How does the length of the liability period impact insurance?
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
What are liability caps?
In the contractual agreement, the maximum amount that can be claimed in damages, even if the court would have awarded more
What is RICS guidance on liability caps?
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
What is the difference between liability cap and PII limit?
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
What should be considered when setting the liability cap?
- 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
What can liability caps not exclude?
Some specifics in law
Cannot exclude for personal injury, death or fraud
Can you exclude liability all together?
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
What are the risks with permitting work to be used by third parties?
- 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
Where third parties are permitted to advice, what should be done?
- 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
What is an engagement letter?
Contract between member and the client. Sets out scope of appointment and the terms governing the appointment
What if a client only wants to use their own terms?
These should be considered and negotiated
Should be clear as to what terms prevail
How can personal liability be excluded?
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
What is proportionate liability?
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
Can fire safety exclusions apply to PII?
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
