Professional Indemnity – A Consultants Promise
1. Professional Indemnity – A Consultants Promise
Professional indemnity (PI) insurance is an insurance policy that reputable consultants maintain to protect their clients and employees against loss, in the event that the level of service provided by them, falls below that which could have reasonably been expected from a competent professional. It is our promise that the advice we provide is correct and accurate, that we know what we are doing and that you can trust us to do a fantastic job.
The existence of a robust PI policy is the difference between advice or opinion that may be meaningless and, in the case of Black Cat, warranted unrestricted adviceup to a level of £10 million.
Although professional indemnity insurance is not a legal requirement, it has long been a requirement of firms regulated by RICS, that they must ensure that such a policy is in place. However, with the changing landscape and issues surrounding the availability of PI insurance the RICS has softened their requirements. It now chooses to accept policies which contain “Fire Safety Exclusions”.
In comparing proposals from consultants please ensure that you fully understand not only the summary levels of PI insurance offered but also any limitations of those policies and whether there is indeed a “Fire Safety Exclusion”.
2. Fire Safety Exclusions and Their Far-Reaching Effect
On receipt of our insurance renewal documentation for 2021, we were surprised to find that the Insurer, who have 70% of the market, had inserted a “fire safety exclusion” clause within the small print of the policy wording. It is worth noting that the clause had simply been inserted into the rather lengthy terms without first being highlighted to us and many consultants may be unaware of its inclusion. We set out below the actual wording:
“Insurers shall not be liable to indemnify the Insured against any Claim or Circumstance based on any loss, damage, or any other liability including Costs directly or indirectly arising out of, or in any way connected with the combustibility, fire safety or fire performance ofall façade materials including but not limited to external cladding to include composite panels, high pressure laminate, associated core, filler and insulation, signage and insulation, also including internal ductwork, fire stopping barriers and doors and fire protection systems”.
In reading the above, it is important to note that the Insurer was seeking to exclude all liability associated with not only “fire safety” but also the “fire performance of all façade materials”. The wording would extend to all external materials used to construct a building, the maintenance and repair of those materials “not limited to external cladding” and indeed including “insulation”, “doors” and so on.
Had we accepted the insurance renewal without first being extremely diligent, then there would have been a significant gap in our PI cover which would have affected Building Surveys, Planned Preventive Maintenance Assessments, Contract Administration, Project Management and indeed the work of our specialist Façade Consultancy team. These exclusions are significant for all Building Consultancy Practices.
3. The View of the Insurance Market
We challenged the Insurance Provider assuming that the wording may well be a clerical error owing to the impact it would have upon the work that we do. We were surprised to learn that they were unwilling to discuss the omission of the fire safety exclusion and they advised us that it is now an industry standard clause.
We were forced to go out to the wider market to obtain Professional Indemnity Insurance on terms that we were happy provided the best cover for our clients. You may be surprised to hear that from the whole market, we received terms from just one specialist insurer who is approved by RICS and was prepared to omit the fire safety exclusion wording in return for a rather hefty premium of almost £100,000.This was a 500% increase on the same level of PI insurance for the previous year.
We were further informed that it was only our policy of employing senior, more experienced directors, that we have no record of claims or complaints against us and that we have a brilliant specialist Façade team to de-risk our work that insurers were prepared to quote terms without limitation.
4. The View of RICS
We spoke with the RICS who acknowledged the issue within the insurance market. They confirmed that the exclusions were now standardand, as a resultof this they agreedthat “This exclusion is now permitted by RICS…”.
We were told that many firms had been unable to secure policies even with the exclusion wording and that as a result of the situation, the RICS have now established an Assigned Risk Pool (ARP) underwritten by RICS.
We appraised the RICS scheme as we needed a “Plan B” if we were unsuccessful in securing a policy on terms whichwe believed were acceptable.In our opinion, the scheme itself is not fit for purpose as it only offers insurance to a level of £1 million, and it is fraught with restrictions and time limitations.
Whilst acceptance of such exclusions by RICS will undoubtedly buy time for the profession, we believe this is a mistake which could be damaging to the reputation of the profession in the medium to long term. It will only take a few claims brought against companies over the next 12months before the industry realises that there are firms trading without adequate levels of PI and confidence in the profession could be undermined.
We have made our representations clear to RICS and they have not responded to date.
5. Summary Position
In summary, there are now numerous businesses who have signed up to their insurance renewals, without reading the revised terms incorporated within their policies. They are now unknowingly trading without insurance cover for all aspects of the work which they undertake.
A majority of firms fall into this category of renewals handled by our broker. In the last six months, no other firm had sought to challenge the wording and that particular insurer reportedly has a large part of the market.
There are then those firms that have simply been unable to secure cover on any terms who have fallen onto the RICS ARP scheme which will offer up to £1 million of cover with many limitations and they may only remain on the scheme for up to three years and thus face an uncertain future.
We believe there will be a handful of firms like ourselves who, having diligently followed the process, will have secured new favourable terms but at a huge premium. Many firms may simply be unable to absorb this level of cost and for those that can, they will undoubtedly have to reflect the level of PI cost within their proposals moving forwards.
Look carefully at proposals you receive and beyond the summary letter of insurance, typically offered by Brokers, to establish first hand whether there are any limitations or sub limits applicable to the PI Policy. Ensure that the consultants you employ can offer insurance against their advice that is not subject to limitation and be prepared to pay a premium for advice that is not subject to caveats and limitations. We have heard of many firms, some of significant size, who have been unable to source insurance and who are seeking to effectively self-insure at much lower levels.