Professional Indemnity Insurance. Professional Indemnity Insurance What s s it all about?

Transcription

1 What s s it all about? RIBA Advanced Diploma in Professional Practice in Architecture (RIBA Part 3) Ian McCallum RIAS Insurance Services A trading arm of Marsh Limited Agenda - Headliners The Insurance Market Why Have Cover? The Policy Coverage Risk Management Source of Claims Cost of Claims - Examples Questions & Answers 1

2 MARSH Limited Finpro National 30 Staff in Edinburgh, Glasgow, Belfast Edinburgh - Schemes for - Architects - Engineers - Accountants RIAS Insurance Services PI for Scottish Architects Operational since 1984 Joint Venture with RIAS Two Schemes - - Main Scheme - Small Practice Scheme 550 Architects Firms 65% of the Profession 2

3 The Market The Market Premium Spend

4 The Volatile Market of the 80s The Market Premium Spend

5 The Market Stability and Confidence US Accounting Scandals - ENRON World Financial Markets September 11th The Market Post 9/11 Aviation / Insurance Industry Reinsurance Swiss Re, Munich Re Higher Retentions Higher Premiums The Ripple Effect 5

6 The Market Post 9/11 Engineering & Construction Accountants Surveyors Lawyers Contractors and Architects Why Have Cover? ARB Requirements Client Demands Hedley Byrne -v- Heller & Partners (1964) Established Duty of Care What is at Risk? - Business / Livelihood - Good Name Scapegoat 6

7 Why Have Cover? Balance Sheet Protection Litigation-Conscious Society Where there s s Blame there s s a Claim SUED S = Stress U = Unfamiliar E = Error D = Don t t do something The Policy Who Is Covered? Current Firm or Practice Current Partners and Employees Past Partners and Employees Incoming Partners and Employees Partners Estates Sub-Consultants employed by the Firm 7

8 The Policy What Is Covered? Civil Liability Any One Claim / Unlimited Excess Claims Made Wording Endorsements: Housing Regeneration Act 1996 Year 2000 (Millennium) CDM Regulations 1994 and 2007 Collateral Warranties Run parallel to the Building Contract Extend Liability to Third Parties who are not party to that Contract - Funders - Purchasers - Tenants And they are now being tested!! 8

9 Risk Management Why do we practice Risk Management? An effective and embedded Risk Management strategy provides the management with the understanding and assessment of the business risks and whether they are within their appetite leading to enhanced mitigation, reduced surprises and losses Risk Management This provides support so that we can make better decisions manage our businesses better deliver better solutions for our Clients 9

10 Risk Management What is Risk? The combination of the probability of an event and its consequences Probability = likelihood/frequency Consequences = impact/cost/severity This can constitute: Threats (downside/hazard) Opportunities (upside) Risk Management So if a Risk is something which could happen in the future, Risk Management is concerned with understanding - what risks we face - how serious they are - how much risk we are willing to take - what action we need to take 10

11 Risk Management In business, Risk Management is no more than GOOD Management meaning: understand what s s happened in the past understanding what s s happening today predicting how it will impact in the future and considering the action needed to reduce the probability or impact Risk Management We are all Risk Managers! When you put your seat belt on in the car When you write a list before a holiday When you put an umbrella in your bag When you wait for the green man at a pelican crossing You re risk managing yourself! 11

12 Risk Management Identification of the Risk Management of the Risk Transference of the Risk Risk Management Identification of the Risk Management of the Risk Transference of the Risk 12

13 Risk Management Identification of the Risk Management of the Risk Transference of the Residual Risk Risk Management Tips Write it down! Record all Meetings Record the Minute Client s s approval and Sign Off on Alterations Copies to Other Parties If it s s not there, it doesn t exist! 13

14 Risk Management Appointments Planning Applications Design/Build Site Inspections Certification Final Accounts Defects After Completion Assume Nothing! Claims If in doubt, notify! Claims Made policy Circumstances Innocent Non-Disclosure Mitigation Costs - but not betterment 14

15 Claims - Source 0f Claims Site or Survey Deficiency Failure of Specification Roof, windows, doors and heating installations Water Ingress Approvals and Grants Supervision? No Inspection? Yes Claims - Examples Inadequate Specification Water Ingress Wrong Type of Windows Refuse Access Defective Bricks Soot Damage Fire Inspection 15

16 Large Claim Construction Cost 95,000 Site Cost 25,000 Architect s s Fee 7,500 Example of a Large Claim Construction Cost 95,000 Site Cost 25,000 Architect Fee 7,500 Arbiter s s Award of Damages - 195,000 Including 5,000 for Solatium, 2,000 for Hotel costs and 1,000 for Kennel Costs 16

17 Example of a Large Claim Construction Cost 95,000 Site Cost 25,000 Architect Fee 7,500 Own Defence Costs at 100,000 Example of a Large Claim Construction Cost 95,000 Site Cost 25,000 Architect Fee 7,500 Pursuer s s Costs including three Expert Witnesses at 300,000 17

18 Example of a Large Claim Construction Cost 95,000 Site Cost 25,000 Architect Fee 7,500 Total Settlement Costs 700,000 Legislation, Litigation and Run Off Cover Blyth & Blyth -v- Carillion Construction Limited (2001) Merrett -v- Babb (2001) Run Off Cover 18

19 Professional Indemnity ARB Complaints Claimant makes complaint to ARB directly ARB ask their Member to respond : he must respond within a prescribed period of 14 days Open Letter available to the complainer and the complainer then gets right of reply Registrar of ARB decides whether the matter requires further investigation but it can be rejected at that stage (and there is no right of appeal!) If it s s investigated then it s s referred to the Investigation Committee which can: Professional Indemnity ARB Complaints Reject the Complaint; or Admonish the Architect; or Refer it to the ARB Board Solicitor who will appoint an expert Architect to investigate When they have the Report a Hearing will be fixed and attended by the Complainer, the Architect and three members of the ARB Professional Conduct Committee 19

20 Professional Indemnity ARB Complaints Sanctions range from Reprimand and/or Fines to period of suspension from the Register Removal of the Architect s s name from the Register Architect can apply for Judicial Review of the Decision PI Policy does not cover this but prudent insurers will make contribution to costs in the hope that successful defence at this stage will reduce the possibility of a claim. Questions and Answers 20