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How are professional indemnity insurance exclusions affecting your practice?

Mark Klimt, Partner at construction lawyers DWF, explains how practices should discuss liability with clients.

07 October 2021

Practising with limitations and exclusions to professional indemnity (PI) cover appears to have become a fact of life for the majority of UK practices. The Construction Leadership Council’s survey in early 2021 found that 78% of practices had some form of fire safety or cladding-related restriction on their policies.

Of these, a significant proportion could only obtain PI insurance with blanket exclusions for fire safety advice that apply to all elements of a building. The wording of limitations varies, but it is not uncommon for such exclusions to cover all building types, making no distinction between higher risk tall buildings and a single storey residential project.

Mark Klimt, PI specialist partner at DWF Law and a RIBA Specialist Practice Consultant, will be advising architects on how they can address PI exclusions while maintaining their professional obligation to maintain PI cover adequate for the services they provide at the RIBA’s online conference Guerrilla Tactics 2021: Stop, Collaborate and Listen on 9 November 2021.

Your client must be made aware formally that you are assuming no liability for anything for which you are not covered. When agreeing terms of appointment for a new project, it is essential to explicitly exclude any services that are excluded from your PI cover in your appointment documents and any third party warranties.

You can then advise that liability for excluded matters should be assumed by other consultants, to be appointed.

  1. For basement work, a common PI exclusion at the moment, liability should be taken on by the structural engineer and covered by the engineer’s PI.
  2. For fire safety, the client should be advised to appoint a fire safety specialist to take on future liability for any fire safety advice.

For major projects this passing on of a particular liability to a consultant other than the architect ought to be achievable, Klimt believes. The problem with fire safety is that it touches upon every project, even the most modest residential extension, and domestic clients may be unwilling to appoint a separate fire safety engineer. This is emerging as a common concern for small practices, Klimt reports.

There is no legal requirement for someone to be holding PI cover for every aspect of a project. The legal requirements are that the building should comply with Building Regulations and be signed off by building control. The PI problem is a professional one – the obligation to maintain an appropriate level of PI to cover the services you are offering – and an instrument of self-protection that maintains a degree of financial security to all parties.

As exclusions to professional indemnity (PI) insurance cover have become the norm rather than the exception, architects need to be sure that their terms of appointment are explicit in stating that they are not liable for excluded areas.

From a professional obligations point of view, Klimt points out that in the current PI market, if a practice is unable to realistically access cover for fire safety advice, it should endeavour to act professionally in attempting to ensure appropriate PI cover is in place. After making it clear that your practice cannot be held responsible for fire safety due to PI market restrictions, you should advise a client to appoint a fire specialist and emphasise that this is an imperative.

The other area of concern for practices facing PI exclusions is that of legacy projects. Such exclusions effectively remove elements of insurance cover for external cladding and fire safety related areas in projects where the client had expected cover to be maintained for twelve years after completion.

Klimt urges practices to review past appointment documents to see if there is a contractual obligation to inform the client of any changes to your PI cover within this period. The RIBA Professional Services Contract, for instance, obliges you to inform clients if PI cover has become restricted or is no longer available. If there is no contractual obligation, then clients can be notified at the architect’s discretion.

The removal of PI cover for external cladding, for example, does not mean that you can no longer face a claim over this in a completed legacy project. But, Klimt believes, it does in practice make a claim less likely. He adds that while it is not a comfortable thing for architects to do, notifying past clients that your PI cover has been restricted is becoming increasingly common among practices.

The RIBA’s most recent Practice Note on PI Insurance, which was issued in July 2021, recommends that architects keep a record of any efforts to secure broader PI cover than they have in place, demonstrating the market-wide restrictions that insurers are imposing. It contains further advice on this concerning, industry-wide problem; and it may be helpful in providing context to clients.

Klimt advises that maintaining such a paper trail, perhaps including a statement from your broker confirming that PI without exclusions was not available at a commercial rate, can be useful to show to past clients when informing them of your reduced cover.

Thanks to Mark Klimt, Partner, DWF Law LLP.

Mark Klimt, will be further discussing PII exclusions at RIBA’s online conference Guerrilla Tactics 2021: Stop, Collaborate and Listen on 9 November 2021. Tickets are now available.

Text by Neal Morris. This is a Professional Feature edited by the RIBA Practice team. Send us your feedback and ideas.

RIBA Core Curriculum topic: Business, clients and services.

As part of the flexible RIBA CPD programme, professional features count as microlearning. See further information on the updated RIBA CPD core curriculum and on fulfilling your CPD requirements as a RIBA Chartered Member.

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