M005 Conduct, Rules, Ethics And Professional Practice - Pi Insurance Rics Apc

Front 1

What does PII stand for?

Back 1

Professional Indemnity Insurance

Front 2

What is the purpose of Professional Indemnity Insurance?

Back 2

To provide financial cover in the event a client suffers financial loss as a result of a breach of professional duty e.g. neglect, error or omission

Front 3

What benefits does it provide for the professional?

Back 3

The professional is protected from financial loss
Does not have to meet the claim from their own assets and resources

Front 4

What benefits does it provide for the client?

Back 4

Can recover their financial loss

Front 5

On what basis is it underwritten in the UK?

Back 5

On a claims made basis

Front 6

What does this mean?

Back 6

That it is the insurance policy that is in place at the time the breach is discovered that is claimed under NOT the insurance policy in place when the breach was made

Front 7

Tell me about Merrett v Babb?

Back 7

Court case in 2001
Babb had done a valuation as an employee of a company for a house purchased by Merrett
Valuation later found to be negligent
The original company no longer existed
Court ruled Merrett could pursue the individual – Babb – for the losses
Big shock in the industry

Front 8

What is the significance of it?

Back 8

Considered if a professional employer was vulnerable to claims brought directly against them for advice given on behalf of their employers
Highlights importance of run off cover
Professional individuals and firms must ensure that run off cover is in place after they leave their firm’s employment or a firm ceases trading
Individuals should ensure that their ex company keeps up this cover on their behalf

Front 9

How long should run off cover be in place?

Back 9

Depends on the type of contracts the professional has been involved with
Usually 6 years if contract executed under hand
12 years if executed as a deed

Front 10

What are the requirements regarding PI by the RICS?

Back 10

Must be made on an ‘each and every’ claim basis
Gives min wording
Sets out minimum levels of indemnity
Sets out maximum levels of uninsured excess
Run off cover must be in place for at least 6 years
Should include cover for past and present employees, directors and partners

Front 11

What are the minimum levels of indemnity?

Back 11

This depends on the firm’s turnover
If turnover is £100k or less it is £250k
If turnover is £100 - £200k it is £500k
If turnover is above £200k it is £1m

Front 12

What are the maximum levels of uninsured excess?

Back 12

Depends on the level of indemnity
Up to £500k = greater of 2.5% of insured sum or £10,000
Over £500k = 2.5% of the insured sum

Front 13

What if the loss exceeds the cover provided by the PI insurance?

Back 13

The professional / firm is liable for the difference – in assets etc

Front 14

What measures should be taken to try and avoid PI claims?

Back 14

Keep full and detailed records of meetings, conversations etc
Record recommendations and advice given
Use proper letters of engagement, scope of services and terms of engagement
Don’t advise on a specialism outside your field of experience
Use RICS guidelines
Avoid poor management and excessive workloads

Front 15

If you made a mistake in your cost plan what would your insurance company expect?

Back 15

For you to notify them and comply with any conditions / procedures set out in the insurance policy

Front 16

Are you familiar with the term limit of liability and where would it be used?

Back 16

Limit of liability is used to place a cap on the level of exposure a business signs up to.
In the aggregate means as a maximum after many different claims.
If cover is for each and every claim, it is that level for each claim.
Anything not covered by PI insurance can be gone after so assets could be at risk.
As such, companies try and place a limit of exposure.

Front 17

How would a net contributions clause affect this?

Back 17

Net contribution clauses seek to ensure that the consultant’s liability is only for the loss they cause
If another party is also responsible for loss the client will have to sue them separately

Front 18

If an estimate prepared by a QS is incorrect can the client claim damages?

Back 18

Not necessary
An estimate that is incorrect in itself will not provide the client with a right of redress
The client must demonstrate that the QS warranted the accuracy of the estimate OR that it was incorrect due to a lack of reasonable skill and care
It could have been incorrect due to reasons outside their control e.g. market conditions