New RICS Guidance for Risks, Liability and Insurance April 2021
The RICS have produced a new Guidance Note entitled "Risks, Liability and Insurance", which came into effect on 1 April 2021. This note is a must read for surveyors and provides practical advice for risk management and the points to consider when seeking professional indemnity cover.
The genesis for this latest RICS publication was in the Guidance Note entitled "Risk, liability and insurance in valuation work", which RICS produced in order to assist its members to protect their position following the wave of claims arising from the so-called Credit Crunch in 2008. That guidance focused on valuation work, which was the source of the vast majority of the claims being made against surveyors at that time. Since 2008, and as market conditions have improved, and the time for bringing claims relating to valuations undertaken before 2008 have expired, so the focus of claims has changed, with an increase in the number of claims relating to surveys and property management, rather than valuation. The original Guidance Note has therefore not only been updated but also broadened in approach to cover all claims against surveyors.
RPC's Alex Anderson was involved at all stages of the production of the Guidance Note and continues to work closely with the RICS in order to assist surveyors in preparing their risk management strategy.
The RICS has stated "This guidance note is intended to assist both members and their clients in understanding the main risks and liabilities associated with surveying. It guides members in the negotiation of equitable contracts with clients and the avoidance of major risks and pitfalls."
Whilst the appendices to the document still look at the specific issues relating to valuations, the majority of the Guidance Note is focused on the risks applicable to the surveyors profession as a whole.
The guidance also still covers the important issues such as liability caps, third party reliance, terms and conditions including the scope of work and the basis on which the fee will be calculated and, of course, valuable guidance on professional indemnity insurance.
One of the key points the Guidance Note makes is that firms should take a fresh look at the terms and conditions on which they engage with their clients and ensure that all the risks are covered. If a firm has any concerns, it is important to discuss these with their brokers and/or seek advice if there is a specific point of concern for their practice.
The guidance has also been updated following the case of Hart v Large  EWCA Civ 24. In essence, this case highlights the importance of the distinction between 'advice' and 'information' cases. This issue was first raised in the well-known case of South Australia Asset Management Corpn v York Montague Ltd  AC 191, when the House of Lords (as it was known then) drew a distinction between a duty to provide information for the purposes of enabling someone else to decide on a course of action and a duty to advise someone on what course of action they should take. In Hart v Large, a surveyor was found to be negligent for failing to advise the claimants to obtain a Professional Consultant's Certificate before they purchased a property for which he had prepared a survey. The Court concluded that this omission amounted to a failure to given advice, rather than information, which meant that the surveyor was held liable for all losses that the claimants suffered as a result of purchasing the property, rather than only the loss caused by any defects the surveyor ought to have noted in his survey but failed to do so. The case highlights the importance of defining the scope of instruction at inception, and any limitations or exclusions on inspection, as well as making recommendations for any further investigations that may be required.
For further information about the case of Hart v Large, please see our update here.
Professional Indemnity Insurance
This is a crucial requirement for all professionals and the Guidance Note identifies the fundamental areas professionals should consider with regards to their insurance. It is crucial that professionals ensure they have adequate insurance for their scope of work.
We set out some of the key areas raised by the RICS guidance below.
- Risk assessments: It is important continually to carry out risks assessments to determine whether run off cover is required for a longer period of time to cover the 'long stop' period for claims of 15 years. In this respect, firms should also make sure they consider the issue of document retention. The RICS recommends files are retained for 15 years after providing professional services. This is because it is far more difficult to defend a professional negligence claim without any supporting documentation. Without that documentation, a Court will have to decide the case on the witness evidence which, given the passage of time, is often unreliable. Any lack of evidence for the defence will have an impact on the strategy taken in defending the claim. It is therefore best practice to retain the files for the entire long stop period, to give your firm the best chance of defending any claims or indeed, assessing whether there is any liability.
- 'Round the clock' reinstatement basis: The RICS recommends that, if a firm obtains cover on a 'round the clock' reinstatement basis, it must ensure it complies with the RICS minimum terms requirements and that it provides adequate cover for their professional business.
- Policy Coverage: The guidance also draws attention to the fact that, when signing contractual documents, a professional should be mindful that there may be policy coverage issues relating to of contractual liabilities, such as exclusions of liability where there has been reliance on an EWS1 form and the valuation report does not exclude liability to the lender. As we indicated in our previous article, insurers are still permitted to insert fire safety exclusions in their policies, but this is now limited to buildings over four storeys. Any such exclusions must be considered with reference to each professional practice and the potential impact that the exclusion could have on the services offered.
- Excess: Another point highlighted by RICS concerns the excess under the policy. The guidance explains that "the policy excess may now apply to defence costs for each claim made, even where a claim is successfully defended. Therefore firms need to consider what financial impact this may have given they may now be liable to pay more excesses in one year".
It is imperative that firms discuss their policies with their insurance brokers to ensure the firm's risk management profile is accurate and that the firm has adequate cover in place.
It is also important that firms are alive to the consequences of failing adequately to define the scope of work, and to agree terms and conditions, at the outset of an instruction, as well as the importance of retaining documents for 15 years in order to help their firms avoid claims and/or support any defences raised to claims made.