Professional Indemnity Insurance Adrian Dobson, RIBA Director of Practice

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1 Adrian Dobson, RIBA Director of Practice

2 RIBA Practice Department Business, technical and legal support to architects Professional Standards Professional conduct Dispute resolution Accreditation Research and Innovation RIBA Future Trends survey Business benchmarking Research projects

3 RIBA Practice Department Business, technical and legal support to architects CPD RIBA CPD curriculum RIBA CPD providers network RIBA Advanced CPD Professional Communities RIBAJ practice pages Practice e-bulletin Best practice guidance Expert groups Professional events

4 RIBA Insurance Agency Joint Venture between RIBA and Arthur J Gallagher and Co. Appointed broker to RIBA for 25years Arthur J. Gallagher & Co is the fifth largest insurance broker and risk management firm in the world 8 dedicated claims staff 10 dedicated technical staff Approximately 1,800 architectural practice clients Limits from 250, ,000,000

5 What is Professional Indemnity Insurance (PII)? A form of Liability Insurance An Indemnity for the insured puts you in the same position enjoyed before the loss Relates to professional services - provision of any professional service creates a duty of care Breach of duty of care can lead to claim for compensation Can apply even if you do not charge a fee! PII pays the compensation and protects the professional

6 Why does a practice need PII? Business necessity - Protect the insured business and its assets To fulfil contractual obligations - Most contracts have an obligation to maintain PII and specify minimum insurance limit may not reflect the contract value to you. Regulatory requirement ARB minimum terms compulsory since 1st April 1988 (Standard 8 of the ARB Architects Code provides that architects should not undertake professional work without adequate and appropriate PII cover.)

7 How does liability arise? Common Law Tort (duty of care, including to third parties) Statute Law Civil codes, Health and Safety Legislation, Building codes Contract - Exercise of reasonable skill, care and diligence in the performance of your contractual obligations

8 What does PII cover? Claims for loss or damage made by a client or third party Legal costs incurred in defending claims Civil Liability policies Negligence Unintentional infringement of IPR Loss of Documents Libel and Slander; Dishonesty of Employees Claims Made policy wording

9 Policy wording 1 Insuring clauses Limits of Indemnity aggregate vs any one claim Exclusions, e.g. negligence versus fee recovery claims Previous claims Asbestos and pollution claims Conditions Conditions precedent to liability Notification provisions/innocent non-disclosure

10 Policy wording 2 Retrodates Geographical Limits Jurisdiction Run off Aggregate Sub limits Extensions, e.g. Cyber liability

11 Keeping out of trouble 12% PI Insurance Claims by Category 2% Negligent Design Contract Administration/Project Management 33% 56% Planning Other

12 Keeping out of trouble Negligent design (Source of 56% of PI insurance claims according to RIBA Insurance Agency data) Deficiencies in drawings and other construction information - delays; flawed specifications; poor performance Design and build/partial services limitations on use of drawings and other design information where further development needed; not for construction Quantum of claims - National Museums and Galleries on Merseyside (Trustees of) v AEW Architects and Designers Ltd; defective design costs plus adjudication and contractor s delay costs

13 Keeping out of trouble Planning (Source of 12% of PI insurance claims) Inaccuracies in planning drawings (boundaries, dimensions, heights) constructed design not in accordance with approval Discharge of conditions, approval of materials

14 Keeping out of trouble The building contract (33% of PI insurance claims) The need for the contract to be in place/dangers of letters of intent; implications of Trustees of Ampleforth Abbey Trust v Turner and Townsend Mgt Ltd failure to make every endeavour to ensure contract executed; liquidated damages could not be claimed by client Poor/inadequate contract administration; lack of familiarity with contract Good management processes: establish the critical path; process AIs, certs and applications for extension of time within time periods; avoid time at large Keeping up to date with developments in construction law Walter Lilly v MacKay, delay due to relevant event concurrent with contractor s delay

15 Keeping out of trouble PI Insurance Claims by Work Sector 12% 5% 4% 2% 2%1%1% 73% Residential Office/Commercial Education Leisure/Community Hotels Other Medical Church

16 Keeping out of trouble Key things You must have an appointment agreement in place Keep accurate records - if its not written down it doesn t count! Understand your obligations Ensure your contracts do not invalidate your PII Refer all matters to insurers keep your insurer informed about anything which might lead to a claim - be aware of the notification procedures. Most notifications do not develop further. Keep your client informed about anything which may affect time, quality or cost.

17 Keeping out of trouble Risk Management Appointment conditions: Cap on liability Fee adjustment/additional fees Copyright licence Consumer v business client Duty of care Duty to inform (cost; quality; time) don t put your head in the sand; talk to the RIBA; talk to your PI insurer Net contribution clause

18 Keeping out of trouble Risk Management Bear traps in appointment contracts: Deleterious materials Copyright PI insurance commercially reasonable rates Fitness for purpose/performance warranties Joint and several liability

19 Keeping out of trouble What underwriters like: Practices that talk to them - do not be afraid to notify any circumstance Timely notification the earlier the better Robust internal procedures for reporting all matters on an on-going basis Full disclosure Architects who read the policy wording and understand their obligations

20 Keeping out of trouble What underwriters do not want you to do: Do not admit liability Do not sign your life away always carefully check your appointment contract terms and conditions use standard RIBA forms where possible Do not act without Underwriters agreement on claims matters Do not wait for an issue to go away

21 How to buy PII Proposal form / Statement of fact forms the basis of your contract with insurers Duty to Disclose claims history Appoint a specialist broker Be wary of cheap online offers Contract and warranty review advice / services Innocent non-disclosure clause Dispute resolution provision

22 Don t panic! All images RIBA