Practising with some Professional Indemnity Insurance (PII) exclusions is now a fact of business life for many practices. They need to ensure that appointment documents reflect any changes to their insurance cover, and that clients are informed about any relevant exclusions.
Mark Klimt, a contracts specialist and Partner at DWF Law, explains what practices might need to do for projects past, present and future.
Current projects
Both legally and professionally, and for your own peace of mind, you should not accept responsibility for services that you do not have insurance for. This includes circumstances in which exclusions to your PI cover arrive after an appointment has been made.
If you are faced with an exclusion at renewal relevant to an ongoing project, you will need to inform the client of this – you may then be effectively asking for an indulgence from them to change the terms of your appointment.
The client is under no obligation to agree to changes, but commercial clients are unlikely to be surprised: they will be aware of the PII situation facing consultants. Their reaction may depend on how wide ranging the insurer has made the exclusions.
Any exclusion that you try to incorporate in your revised appointment will depend on the wording of the exclusion or limitation. Klimt suggests that the architect should not expect clients to agree to a comprehensively worded get-out, but should be looking for something in the spirit of the changes that have been imposed on them. It will be better to supply your own form of words than the protracted, catch-all wording the insurer may have insisted upon.
He gives an example, though stresses that this is just one illustration, not a standard clause he is recommending that everyone should use:
“The consultant shall have no liability whatsoever in respect of any claim, loss, liability or other cost arising directly or indirectly out of, or in connection with, any aspect of the fire safety or fire performance of a building, including combustibility, fire protection, fire resistance of any external cladding or roofing system or internal fire protection.”
If the client is unwilling, they might still instead accept a negotiated compromise, such as an aggregate limit on liability. If the client could agree to a limit equal to the excess that would apply if cover were in place, you would be no worse off than if you actually had cover. It might have to be a higher figure – make sure that this is something you can live with.
Future projects
The starting point, Klimt emphasises, has to be your exclusion of anything not backed by your insurance, because of a clear professional obligation to maintain insurance adequate for any services you provide. This will involve advising clients of any relevant exclusions.
For a fire exclusion, you will need to advise the client to appoint a fire engineer to sign off on all aspects of fire safety strategy, and to agree to a disclaimer with you for any liability for such matters.
For basement work, another common PII exclusion, liability should be taken on by the structural engineer (though many structural engineers will have similar exclusions).
Commercial clients will, in all likelihood, have an understanding of what is going on; they will be aware of what is happening regarding PII. The situation will be more difficult with domestic clients as they are likely to see fire safety as integral to an architect’s design service.
Klimt suggests that the best way forward will be to try to explain to clients that the insurance obstacles facing architects are market-wide; and are very much not unique to your practice.
You do need to divest yourself of liability, Klimt suggests, even though it may appear to be an unseemly game of pass the liability parcel. Equally, you should be able to demonstrate that you have taken a responsible attitude and informed the client about any relevant exclusions.
Where this is a practicable option, architects can offer to maintain as low a level of insurance as can be negotiated; or give a general commitment to use all reasonable endeavours to maintain a suitable level of cover.
Past projects
Appointment documents should be checked (though not beyond the six or 12-year liability period that applies) to see what contracts say and what your obligations were at the time for maintaining insurance. There may have been a contractual obligation to inform the client of any changes to your PI cover.
The RIBA code does impose an obligation to inform clients of material changes to their policy, but there is a certain amount of discretion for the architect here, says Klimt. Consider whether the changes are material to the project – clearly, a basement exclusion cannot affect a project that did not involve basement work, for instance – and whether any special circumstances apply.
Where clients are to be informed, Klimt suggests that you should present an explanation of why the changes have happened. Keeping a paper trail documenting your difficulties in obtaining PI may be helpful here, as would a statement from your broker attesting to the widespread nature of the issue in the insurance market.
Thanks to Mark Klimt, Partner, DWF Law LLP.
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.
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First published Thursday 14 April 2022
