SafetyNet - November 2015 Griffiths & Armour News

SafetyNet - Winter 2015/2016

Our analysis and guidance on the professional risks you face...

Welcome to Griffiths & Armour’s analysis of the issues of the day that affect the lives of construction professionals. Our aim is to help advise and guide you through the professional risk challenges and opportunities present in your world and to highlight trends identified through the claims we deal with and the myriad of contracts we review each month.

Judging an Architect’s duty to inspect

In light of a number of recent disciplinary decisions by the Architects Registration Board (ARB) for unacceptable professional conduct arising out of inspection failures, Tom Handley of Hill Dickinson LLP reviews what exactly is required of an architect when it comes to the duty to inspect.

Whilst the focus of this article is on architects, to some extent the analysis applies equally to any professional in the construction industry carrying out inspection or supervision functions.

Architect’s duty to act with reasonable skill and care

Image showing men working on a building plan

The nature of the duty of care of an architect is neatly set out by Jackson & Powell on Professional Liability: “As in the case of other professions the standard generally required of an architect in discharging his duties is the reasonable skill, care and diligence of an ordinary competent and skilled architect.”

The standard was more fully described by Windeyer J in the Australian case of Voli v Inglewood Shire Council [1963] A.L.R. 657 as follows:

“An architect undertaking any work in the way of his profession accepts the ordinary liabilities of any man who follows a skilled calling. He is bound to exercise due care, skill and diligence. He is not required to have an extraordinary degree of skill or the highest professional attainments. But he must bring to the task he undertakes the competence and skill that is usual among architects practising their profession. And he must use due care. If he fails in these matters and the person who employed him thereby suffers damage, he is liable to that person. This liability can
be said to arise either from a breach of his contract or in tort.”

The fact that a project architect is relatively junior or inexperienced will not of itself provide a defence to being judged by the standards of an ordinary competent member of his or her profession. Similarly, a highly qualified and experienced architect should not be judged more harshly. However, that is not always the case in practice.

Architect’s form and terms of contract

Image of a bridge

Consideration of the form and terms of the contract are the starting point for an understanding of the architect’s obligations to his client. Of course, each contract will vary depending on the circumstances, including the procurement method, and the size, nature, and complexity of the project.

Architect’s appointments should be in writing and, if possible, on the basis of the RIBA standard form of appointment – although the client may insist on its own bespoke terms. At the very least, the appointment should be evidenced by an exchange of correspondence (an offer and acceptance letter).

However, it is often the case that agreements are oral or partially in writing and partially oral. Likewise, although it is good practice for all terms of a contract to be agreed before the services commence, it is often the case that the main terms are agreed at the beginning but other terms are agreed on an ad hoc basis during the currency of the project.

This is despite Standard 4.4 of the Architects Code: Standards of Conduct and Practice 2010, which provides that an architect is expected to ensure that before he undertakes any professional work he has entered into a written agreement with the client which adequately covers, amongst other things: the contracting parties, the scope of the work, the fee or method of calculating it, who will be responsible for what and any constraints or limitations on the responsibilities of the parties.

Image of a man working at a computer

This year alone, has seen a number of disciplinary proceedings against architects for a failure to comply with this provision. Whilst the sanction imposed for this offence would commonly be a reprimand or fine, the ARB made it clear in a recent judgment that they will consider erasure from the register for serial offenders. Furthermore, any sanction is published on the ARB website for between one and five years (depending on the penalty imposed) and there is, therefore, the risk of damage to the architect’s reputation.

Identifying the services to be performed

It is very important for architects to set out accurately the extent of their services. This is usually straightforward on a traditional contract. But, for more complex or unusual contracts and projects, failure to define roles and responsibilities properly for the architect’s services can result in disputes further down the line. One of the most frequent disputes is in relation to the extent and method of inspection/supervision.

Inspection duties – what does the case law say?

Architects are often engaged to administer the building contract as the client’s project manager... (Read more)

Tailoring the frequency and duration of inspections

It is not enough for the inspecting architect religiously to carry out an inspection of the work... (Read more)

Carrying out Inspections at the right time, before it’s too late

Depending on the importance of the particular element or stage of the works, the architect should... (Read more)

Ensuring that important repetitive works are inspected early on

If an element of work is important because it is to be repeated throughout the whole or part of... (Read more)

Carrying out a reasonable examination of the works

A reasonable examination of the works does not mean the architect has to go into every matter... (Read more)

Risk avoidance measures

Whilst each building project and contract is different, the following check list should be of... (Read more)

An Overview to Run-off Cover
Image of people having a meeting

What is run-off cover?

Run-off Professional Indemnity (PI) cover may be required when a professional practice ceases trading. To all intents and purposes it is a normal PI policy with the exception that cover is excluded for work undertaken after a specified date. Any claims made under such a policy can therefore only ever relate to work carried out prior to that date, i.e. when the practice was still trading.

There can be various reasons why a professional practice might cease to trade. In all such cases some consideration needs to be given to where liability might rest in future for work undertaken in the past and how the defence and/or settlement of such claims might be funded. Run-off cover may be required for a variety of contractual or regulatory reasons or simply for personal protection.

Why is run-off cover necessary?

PI insurance is provided on a ‘claims made’ basis. This means that the policy which will provide protection in the event of a claim is the policy which is or was in force on the date of the insured first having become aware of a circumstance which may give rise to a claim, subject to the insured having given notice to the insurer promptly and within the policy period. This is the case irrespective of when the work giving rise to the claim was carried out. Typically it will have been undertaken during a previous policy period, during which time a different insurer might have been providing cover.

The ‘claims made’ nature of a PI policy means that cover must be maintained after a practice ceases trading if work undertaken prior to cessation is to continue to be insured. The above diagram illustrates this point.

Image showing the mapping of sectors

What exposures might a practice face after it has ceased to trade?

Liability can attach both to firms and to individuals in their personal capacities. Different rules will be more or less relevant to different circumstances. Bespoke legal and insurance advice will therefore usually need to be obtained on where liability exposures might exist and which of these should sensibly be insured. Suffice to say for the purposes of this paper that the relevant considerations will include the following:

  • The trading vehicle (limited company/ sole trader/ partnership/ LLP, or a combination of these);
  • What is to happen to the firm after it ceases to trade;
  • Personal liabilities of employees (Merrett v Babb type exposure);
  • Joint and several liabilities of individual partners in a partnership;
  • The nature of any contractual undertakings given while the practice was a going concern;
  • Whether any corporate entity is to be wound up or will continue to exist as a dormant company;
  • Whether any appointments have been novated from the practice to another firm.

Whether or not run-off cover is recommended will depend on the above and various other commercial considerations.

Limitation periods (or prescription under Scottish law)

Detailed guidance on the rules of limitation and prescription is available upon request in separate... (Read more)

How long should run-off cover be maintained?

As a means of protecting assets, run-off cover should normally be maintained for at least a period... (Read more)

Premium levels

Run-off cover is usually purchased on an annual basis. The premium for the first year of run-off will... (Read more)

Are there any alternatives to obtaining a run-off policy?

There may be situations were run-off cover is not required. For instance, if a company is sold then... (Read more)

Investment Advice

‘Softer Advice’ = Lower Risk: Right?

Consultants who have no design obligations typically tend to regard themselves as being a better PI insurance risk than those whose entire income derives from designing things.

Image of a man prevent dominoes falling

On the whole this is not unreasonable and is generally very clearly reflected in the differential cost of insurance at the softer and harder ends of the skill set.

Engineers with detailed design responsibilities have to design things which must perform once they are installed and become a tangible element of the works. Other consultants might produce advice which by its very nature will never turn into anything physical. It is always easier in the latter cases to rectify any errors without the same expensive consequences associated with addressing physical defects. That, at least, is the conventional wisdom. But is it always true?

As always, general rules have their limits and everything depends on the circumstances. However, we have recently identified that there appears to be an increasing number of claims arising out of cases where the professional has not designed anything but has given what is effectively investment advice, even if he didn’t think of it in that light at the time.

This investment advice can take various forms but in each case the consultant’s client has been a party whose interest is purely financial. He might be the key investor in the scheme or he may be a stakeholder whose interest is slightly further removed such, as a lender. He might therefore not derive any ‘enjoyment’ of the land or the structure in question. Perhaps that fact alone increases the likelihood of a claim if he feels that his expectations have not been met.

Claims Examples

Our client was a surveyor who undertook an auditing role for an insurance company in relation... (Read more)

A firm of architects gave advice to a commercial loan provider on whether or not a proposed... (Read more)

Wide of our own clients’ claims, the insurance market is following with interest an action against... (Read more)

Ready to discover the difference?

Our approach is about making sure that all your risks are identified, understood and managed. Which is why, from time to time, it makes sense to check that your business is not missing anything. To review your Professional Indemnity Insurance, please call us on 0151 600 2222 or email piinsurance@griffithsandarmour.com.



About
The Griffiths & Armour logo

Our Professional Indemnity (PI) solutions are designed and delivered to allow professionals to provide advice and service to their clients, secure in the knowledge that their insurance safety net is proven, reliable and in safe hands.

We have a detailed understanding of the types of PI claims that can attach from the provision of professional advice; this feeds into our inclusive contract review service, where we have a team who review over 500 contracts per month for our clients.

The value of our service lies not only in specifying and purchasing the right insurance in first class markets, but in the consistent, fully independent advice offered on the management of risk and the support provided when claims arise.

Further Advice and/or Clarifications…

If you have any questions or queries with regard to the content of this article or would like to discuss your PI insurance requirements, please do not hesitate to contact us.

Paul Berg
Director
T: 0151 600 2202
E: pberg@griffithsandarmour.com

Stephen Hargreaves
Director
T: 0151 600 2176
E: shargreaves@griffithsandarmour.com

Other News

Professional Risks: ‘Beyond Edinburgh Schools’ – Lessons for the Future

The sudden and dangerous collapse of a wall at Oxgangs Primary School in January 2016 led to the closure of seventeen schools in Edinburgh… (more)

‘Managing Risk in a Changing Business World’ – Construction Professions Roundtable

‘Risk is an unavoidable fact of life in the construction sector’ – is the opening quote in Griffiths & Armour’s most recent risk management… (more)

WannaCry Cyber Attack: What happens next?

On 12th May 2017 computers around the world were hit with the largest ransomware attack ever recorded… (more)

View further publications

& that's the difference
YouTube icon   Twitter icon   LinkedIn icon