RIBA has published a free Guide To Professional Indemnity Insurance 2024 written by insurance risk expert and respected claims advocate, Roger Flaxman, which is exclusive to RIBA Members.
Despite professional indemnity (PI) insurance being mandatory for architects’ practices, the scope of the insurance cover they are purchasing can be poorly expressed and understood, Roger argues, and price all too often becomes the overriding buying consideration.
The new guide is described as the first of its kind to give modern architects and designers an understanding of how their vulnerability to complaints and claims can arise in practice. It also explains how PI insurers operate, what the wording of policies actually means, and how to compare the inherent value of good policies as well as the price.
However, it’s not just a buyer’s guide. The guide also exposes the murky world of brokering, underwriting, and claims negotiation and the meaning of complaints, claims and legal liability together with a comprehensive glossary of insurance jargon and terms.
With all that being said, what are the five essential takeaways from the guide?
1. Cheapest is not necessarily best
Most PI insurance is bought on price because it is too complex to compare by any other means, Roger says. He adds that it is such a complex subject and so remote from the profession’s world of design that no one wants to deal with it. Moreover, it’s expensive and largely resented as a compulsory overhead expense.
To help with a comparison of the policy’s value, the guide explains the key features of PI insurance policy wording, how to read it and the meaning of policy exclusions, policy terms and conditions, and definitions that limit the scope of cover.
The increasing trend towards buying insurance online without the advice of a specialist PI insurance broker makes it all the more important that architects can find out what they do not understand about policy wording and insurance industry jargon and terms.
2. Is ‘the unexpected problem’ a notifiable circumstance?
One of the most frequent ways that practices run into trouble, says Roger, is a failure to notify their insurer when something appears to have gone wrong, and whether it has turned into a formal complaint or not.
He explains that there’s a natural temptation for practices to avoid notifying the insurer about an emerging problem or potential complaint – for fear of future cost and availability of PI premiums. Rather, the practice tries to sort out the problem for themselves and in doing so unwittingly lays a pathway to an expensive claim down the track.
The moment you take a decision not to notify your insurer, warns Roger, you are potentially in breach of your PI policy obligations. Should the problem not go away, as intended, and you later decide to notify, there is a high risk that the insurer can argue that the policy is void and you are uninsured. You then have to disclose that breach to your future insurers, he adds, and that can render the firm uninsurable.
“The most important thing for an architect of any age or experience to know is ‘what does a notifiable claim look like, or sound like? How do I recognise one and how do I notify it without raising my future insurance premiums, and when?’ The guide explains this.”
3. How can we be contractually liable for that?
Architects often do not realise that they can unknowingly have a contractual ‘legal liability’ relationship with sub-contractors and sub-consultants with whom they are working on a project even if there is no formal contract in writing between them.
The guide looks in detail at the various hidden pathways that are open to dissatisfied parties to make claims against the architect, if they are not justified, in the end. The guide suggests ways in which the chances of this happening can be reduced.
In fact, the modern architect can now face a greater risk from claims associated with sub-contractors than from the clients themselves, Roger suggests. This is because of the complexity of the law of legal relationships that arise from outsourcing and compartmentalisation of architectural/design services.
The architect tends to be first and last in line for claims because they are by the public as the ‘overarching expert professional’ responsible for the entire scope of the project even though that is not always strictly so, depending upon the terms of the contracts in force.
Roger adds that a practice is legally obliged to defend an ‘allegation’ even if it is not eventually substantiated.
4. Constant need for oversight
Roger has been involved with PI insurance claims against architects and designers for more than 40 years and he says one of the biggest changes has been the increasing separation between the original project concept and design and the component parts provided by ‘others’ that the finished project relies upon.
In parallel, practices are increasingly employing more architects to do a particular job and fewer all-rounders capable of taking an overview. While the benefit is experts in their specialisms, the danger of this compartmentation is, of course, that potential problems go unnoticed by people who have responsibility for their own part of the job.
“Unless you have people who are connecting the dots in these processes and rigorously overseeing people’s work, and that doesn’t always happen so much anymore, latent problems can slip through the net; and that is the first thing the lawyers will look for,” he says.
“Where can we put the knife in, they might ask. It may have nothing to do with ‘bad design’ as such, it’s usually very often just something that no one had thought about or noticed and that, in law, can be their undoing.”
5. Architects 'in denial'
Most architects approach PI insurance with the mindset that they cannot foresee the possibility of making a mistake for which they could be responsible. But, from time to time, things do go wrong that no one can foresee. Denial of the possibility of a complaint, or an allegation of fault or neglect, can be the most expensive mistake an architect can make.
Claims lawyers are paid by insurers to look for fault even if it does not exist. They look for the weaknesses in the architect’s defence of the potential allegation or claim against them and they also look to see if the architect has breached any policy terms or conditions.
If there is an underlying tension in a project, says Roger, it is inadvisable to be in denial because experience of over 40 years shows that it will invariably and inevitably be exposed by a third party determined to have their ‘day in court’.
It is essential for architects to have a complaints-handling process in place at all times and to remember to use it when a complaint is made. See RIBA’s own Code of Conduct for guidance in this area.
Please note that this information is to be used as guidance only. If you require advice, we always recommend members should seek an FCA-approved provider.
Thanks to Roger Flaxman, Chairman, Flaxman Partners Ltd.
Text by Neal Morris. This is a Professional Feature edited by the RIBA Practice team. Send us your feedback and ideas.
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