The new Construction (Design and Management) Regulations 2015 (CDM 2015) which are due to come into force on 6 April 2015 introduce significant changes to the existing legislation and will impact on every construction project. The proposal sees the removal of the CDM Co-ordinator and the introduction of a new duty holder called the ‘principal designer’ (PD) who will be responsible for the coordination of health and safety matters. They also propose to place statutory health and safety duties on domestic clients for the first time and change the criteria for notification to the enforcement authority.
General Response from Professional Indemnity Insurers
How do these changes effect Professional Indemnity Insurance and what do policy holders need to do? We have polled a number of insurers in the professional indemnity market and generally the basic response appears to be that insurers are happy to provide cover for the duties imposed by the role of Principal Designer, however, they will expect the insured to undertake adequate training and have sufficient resources/competences to fulfill the role as with any other duty a professional holds themselves out as being capable of doing for insurance purposes.
Directors and Officers Insurance (D&O) for Principal Designers:
Please note that if you are undertaking responsibilities concerning Health & Safety you may want to consider D&O cover, as D&O offers a much more comprehensive cover and protection against criminal prosecutions for alleged breaches of health and safety legislation (which usually follows where injury/accidental deaths occurs). Professional Indemnity policies will only provide a limited amount of cover specific to Health & Safety claims so the addition of a D&O cover is a sensible inclusion. D&O is applicable to limited companies only.
We understand from many of our clients that they are seeking to out-source the Health & Safety element to experienced CDM Co-ordinator’s that they may or may not have used in the past. Where the CDM Co-ordinator is hired to work as a consultant to a particular firm, the firms own PI may cover this sub contracted work but generally insurers will look to subrogate claims to such third party providers. Our recommendation to clients would be to ensure that the CDM Co-ordinator’s have their own PI insurance preferably to a comparable level with their own, but certainly no less than £250,000 on an each and every claim basis.
1. Please see details for a workshops being offered via the Construction Industry: (www.citb.co.uk)
2. The RIBA has a core CPD programme including a session on CDM and its practical application for architects, taking place in 14 cities across the UK. Visit the RIBA website.
3. Principal Safety.co.uk
Additional courses & service suppliers will develop in the near future and once the new regulations have been “bedded-in”.
In time, Insurers will doubtless assess whether this new PD role is creating an increased exposure to claims and if it is then they will of course doubtless react to this by adjusting PI premium rates for those practices undertaking the role.
As this is a new business role it will not have been addressed for most architectural insureds at their last PII renewal although some will have already have been carrying out such activities already. A change in your business activates or services represents a material change to your business and as such must be reported to your insurer mid way through the policy if need be. If you intend to take on this new role in and you have not declared it to insurers previously we recommend you do so before accepting the responsibility. We would expect that going forward, insurance proposal forms will ask about the Principal Designers role which will then replace the need to report to insurers mid term in the future.
If you intend to undertake the role of Principal Designer, we would suggest that you confirm that you feel you have sufficient expertise and resources to undertake this role to your insurers.
Hammond PI Small Architects Scheme
Although the small architects scheme is designed for smaller architects and their traditional roles and so is not suitable for all types of architect practice. The scheme is offered on a statement of demands and needs and also a “statement of fact” that does not specifically mention the role of Principal Design. Our scheme insurers say that generally they are happy to note the new role of principle designer and agree to cover this subject to policy terms and conditions and confirmation that the individual charged with this new roles has undertaken training around their new responsibilities. Where a firm does not have in house expertise in these areas they should outsource this activities to a specialist firm.
Attached are some practical guidance’s and information around this issue which should assist in general the understanding concerning the Legislation changes and should assist in implementing changes within your contractual documents:
• PDF Document from Construction Industry Training Board - Click here and request a copy
• A video webinar from solicitors Beale & Company: Watch
• Summary: DesignBuildings.co.uk
Please contact us on 01217883444 should you have any queries.
There will be large increases in court fees from March 2015 earlier that had initially been expected. From Monday 9 March there will be a change to the way fees are charged in both 'specified' and 'unspecified' money claims.
Of relevance to PI insurers and policyholders:
- Claims for between £10,000 and £200,000 will incur a court fee of 5% of the amount claimed, which would see, for example, a 400% increase in the fee charged for a claim for £90,000 (from £910 to £4,500)
- Claims for over £200,000 will incur a fixed court fee of £10,000, an increase of over 400%
- The Court fees for claims valued between £0 and £10,000 are unchanged
What will this mean for insurers and PII policholders
Claims issued from next week, 9 March 2015 onwards, will require larger reserves to be held for claimant’s costs and will need to reflect the higher fees which may be recoverable in the event that a claimant is successful.
Insurers may have to give greater thought to the decision to defend a claim or if to settle early, not something which always sits well with the policyholder who believes he/she is being wronged.
There are many other implication, however, the law society has expressed its own concern at the large increases and has suggested a review be sought. We will report more on this as the new rules unfold.
Read more on the law society website
If you’re in construction, bear in mind that from April of this year, the new Construction Design and Management (CDM) Regulations 2015 will abolish the former independent CDM Co-ordinator role and replace it with that of a ‘Principal Designer’ (PD).
This will apply to all projects except those that appointed a CDM Co-ordinator and started the construction phase prior to April 6, 2015. Under the new regulations, the PD must be appointed in writing at the pre-construction phase by the client, and then takes on the health and safety co-ordination role that would previously have fallen to the CDM Co-ordinator. So far, so straightforward, but take note that under the regulations, the PD must be a designer - i.e a person or an organisation who prepares or modifies a design for a construction project, or arranges or instructs someone else to do so. This means that new liabilities will need to be taken on by design professionals. Why? Because the vast majority of CDM co-ordinators won’t qualify as PDs due to them having no prior responsibilities around design. This surely means that the role will fall to the lead designer and in most cases, this will be architects – even though they are extremely unlikely to have the skills needed to cover the health and safety duties that the role includes. Inevitably this has major implications for the professionals in question should any claim be made for breach of obligations under a PD appointment.
One way of dealing with a lack of health and safety knowledge on the part of the new PD is to sub-contract the work, but even in this situation, any liability will be borne by the designer in the first instance, and then it will pass to the sub-contractor. All of this will not only involve legal costs, but will carry with it the likelihood of a shortfall when trying to recover costs. This article is attributable to an article by Kennedy’s Solicitors one of our favored providers of PI associated services. To read Kennedy’s article follow the link.
In Stephen and Carol West v Ian Finlay & Associates  EWCA Civ 316, a case involving the interpretation of a net contribution clause, the Court of Appeal have overturned a first instance decision and held that the architect could rely on the net contribution clause to limit its liability. 14 May 2014
I have written before about the use of a net contribution clauses. I read recently a bullitin issued by Browne Jacobson on the subect which I would like to share.
What is net contribution clause?
As independent Brokers we don't have a Management Liability (ML) Policy wording of our own, but we do have access to a wide selection of leading insurers in this market. Generally a (ML) has three sections:
• Directors & Officers Insurance (D&O)
• Corporate Liability Insurance
• Company Employment Insurance
Directors and Officers (D&O) Insurance Is bought for the benefit of the directors and senior employees, and provides protection against claims arising from decisions and actions properly taken whilst managing the business.
D&O has two distinct insuring agreements:
Side A protects directors and officers against losses that they are required to pay personally.
Side B indemnifies the company against losses it has to pay on behalf of its directors.
Corporate Liability Insurance Protects the Company itself against claims encountered in conducting their corporate activities such as a breach of any health and safety legislation, or any investigation by a regulatory body in the UK.
Corporate Employment Liability Insurance Provides protection for the company against claims brought by past, present and prospective employees for employment related matters such as unfair dismissal, harassment or wrongful termination of employment. This element in not always available as part of the package.
We can provide a full summary of cover from a suitable insurer on request and in many instances can quote you whilst on the phone. 0121 788 3444 or try our Live Chat.
I was asked last week - "I am an RICS surveyor and have virtually ceased to trade aside from just finishing a few bits and bods but insurers say I cannot put my PI into run off yet. Won’t this involve me more cost due to delaying the start of the 6 year run off?"
Good question and a not unfamiliar one. Let's firstly look at what run off insurance is? Run off Professional Indemnity is a normal PI policy but endorsed to say it will not provide cover for work undertaken or completed after the applied “run off” date (The date you apply to run the policy off).
In this case, the RICS prescribe the six years, but general six years is seen to be the norm as the statute of limitations runs for six years, however, in practice claims can be brought outside of this limit under tort. Many other institutions also prescribe six years for its members. If you have ceased to trade aside from tidying loose ends or doing none RICS activities then you can leave your policy un-endorsed for as long as you want and then when you are happy you have completed your loose ends put the policy into run off then. The un-endorsed policy will have already provided indemnity for the past work even though not in run off, that’s how PI works.
You could in practice keep the policy un-endorsed for a couple of years after you have ceased trading and then place it in run off going forward, maintaining it until six years after you did your last piece of work, say two years before the run off endorsement was applied. So long as the period of six years from cessation of professional work is maintained by PI you are in compliance.
What about the premium however? It is true, we expect premiums on annually renewed policies in run off to reduce, however, if you have not worked for twelve months but have not put your policy in run off, we would expect a premium reduction to be applied just as if you were in run off. In most cases premiums at the start of a “run off” policies first years rarely differ from the preceding year.
Delaying endorsing a policy until its next renewal can also have its advantages. There are virtually no insurers looking to take on PI policies that are already in run off, speaking to a specialist ahead of winding your business down may enable you to position yourself with an insurer who will offer you better run off options than the one your are currently with. Such options may include no minimum or low minimum premiums, polices in “run off” can often fail to see reductions in premiums due to insurers minimums. The option to buy multiple years of “run off” ranging for one to six years or even odd terms of cover like 40 months to bridge the gap between expiry and 6 years are also other options.
Throughout 2014 we have been discussing with clients and expressing our support for the Government Bill on insurance law reform. This was designed to improve clarity around the insurance contract for commercial customers and better reflect the way we choose to do business in the 21st century.
We can now report that The Insurance Act 2015 receiving Royal Assent on 12 February 2015.
What does the Act include?
To summarise, the key elements of the Act are as follows:
Duty of Disclosure & Representation – The existing duty remains and is clarified with the requirement for businesses to make a ‘fair presentation’ of their risk to insurers.
Remedies for Non-Disclosure or Misrepresentation - Remedies must now be proportionate and reflect the actual underwriting impact, had the correct information been provided originally.
Basis of Contract Clauses – Are abolished removing mechanisms which allow avoidance if risk information provided is inaccurate.
Remedy for Breach of Warranty – Warranties can continue to be applied but breach will now mean liability is only suspended for the period of the breach and only where relevant to a claim.
Remedy for Fraud – The new remedy removes the option of avoidance. In the event of fraud an insurer remains ‘on cover’ for claims made before the fraud occurs but has the option to cancel the policy with effect from the date of the fraudulent act.
The Act is an important step on the journey to improved certainty for customers and we'll continue to engage with you as we move forward with implementation.
If you are reading this you have probably already embraced the IT and multimedia world and the chances are that you will have been using much of the available technology in your business today. Do you have a web site, use remote computer access, share electronic facilities with outworkers or sub contractors including temporary workers. Does your website contain a member log in function, do you store personal data on your servers or PC’s, do employees use laptops and maybe sometimes carry information that could contain personal information about personal or corporate clients and not just financial information personal information on projects, legal actions or family history and wealth has a value. Most business don’t forbid its employees form using the firms telephones these days the use of the firms computers to send emails is also generally permitted. Do staff have access to the internet, do they pop onto Facebook or other such social media sites and if so where else do they visit.
Cyber liability is possibly the fastest growing risk too small and medium size businesses today. Data breaches are now a fact of life together with taxes and death, but how can businesses better manage the risks related to a data breach and reduce the significant cost that can result from them? In some countries including most of the US data breach notification is law and it won’t be long before the EU brings about its own legislation. The more you think about cyber risk the more fearful you should become there are so many ways hackers and undesirables can threaten your financial standing or even survival unless you have taken measures to transfer that risk away from the business.
Cyber Liability Insurance transfers the risk from you to your insurer, cover can include:
Data breach/privacy crisis management cover. For example security beaches leading to expenses related to the management of an incident, the investigation, the remediation, data subject notification, call management, credit checking for data subjects, legal costs, court attendance and regulatory fines.
Multimedia/Media liability cover. Third-party damages covered can include specific defacement of website and intellectual property rights infringement.
Crisis management Customer notification, support & monitoring expenses - mitigation costs following a security or privacy breach
Privacy regulations - Defence costs of Information Commissioner investigations
Extortion liability cover Typically, losses due to a threat of extortion, professional fees related to dealing with the extortion.
Network security liability Third-party damages as a result of denial of access, costs related to data on third-party suppliers and costs related to the theft of data on third-party systems.
Q. What is the difference between a professional indemnity policy and a pension trustee liability Insurance?
Q. How is a pension trust liability insurance more appropriate than a professional indemnity for pension scheme trustees?
Posted to our website
Professional Indemnity Insurance or Errors and Omissions insurance as it can be known is a claim made liability insurance which protects the insured from claims brought by clients or customers in recompense of financial losses resultant from the insured’s negligent advice, failings in professional services or breach of professional duty.
Professional indemnity Insurance can be written either as a civil liability insurance or on an insuring clause basis. Either ways the basic core of the insurance provides the cost of defending claims and if found liable the settlement proceeds of the claim.
Whist the core benefit of professional indemnity adheres to the principal of errors and omissions different professionals have different requirements in respect of the cover for the activities which may be unique to their profession. Also insurers have specific things they would look to exclude from cover except for those certain professionals who should be or who are qualified to undertake such work.
Wordings therefore differ between professionals with surveyors, architects, solicitors and accountants being some of the professions who have there own specific policy wordings. Many professionals fall under the heading of a miscellaneous policy wording or what may be described as a standard wording. Over the years wordings for specific professionals have developed with additional extensions and exclusions being applied to match the requirements of the various professions rather that just add a list of endorsements to a miscellaneous/standard policy to suit a profession. The same applies for Pension or other trustees, who have responsibilities that would not generally extend to other professions. Secondly and perhaps more relevant to your question, insurers offering Professional Indemnity to Pension Trustees as with other trustees such as charities, clubs or associations, tend to offer a policy which combines both an element of Professional Indemnity insurance but also some executive liability cover, Fidelity cover or possibly some loss of documents cover. These additional layers of cover reflect that the trustees do a somewhat different duty to other professionals in that the provision of advice if generally secondary to their other duties.
Example of trustee insurance
Provides indemnity for the personal liabilities incurred from a ‘wrongful act’ whilst acting in the capacity of a "manager" of the charity/association. Includes cover for damages, own and third party costs and expenses and costs incurred by the insured attending official investigations. The definition of ‘manager’ usually includes, governors, directors, council members, officers, trustees, shadow directors and employees. Where appropriate cover will extend to their spouses, estates, heirs, legal representatives or assigns. Where the charity/association has an obligation to indemnify, the cover will incorporate the
charity or association.
Provides indemnity to the charity/association, its managers, employees for damages, own and third part costs and expenses arising from a ‘wrongful act’ committed in the conduct of the charity’s or association’s professional services.
Indemnifies the charity or association against losses caused by dishonest, fraudulent, criminal or malicious acts of managers or employees for personal gain.
Indemnifies the costs and expenses of replacing or restoring documents destroyed, damaged, lost or mislaid in or about the conduct of the charity’s/association’s ‘professional services’.
RSA is to swing the Axe at its UK professional indemnity book, withdrawing from products for architects, design and construction, and survey and valuation as well as excess of loss Professional Indemnity cover.
The insurer is to cease providing some PII capacity in the UK from 1 May 2014. It will, however, maintain products for engineers, accountants, property professionals, media, IT and others.
RSA, which includes MoreThan customers have said that from 1 May, no more new business will be written for Architects, Design and Construct Risks, and Surveyors involved in more than 10% S&V. In addition they will not be quoting for any further Professional Indemnity Excess Layer policies.
We understand that from 1 July 2104, Renewals will also be declined for these professions.
The news broke out after it was revealed by an industry publication that the RSA Binder with Towergate will also cease.
The news follows a similar move by Aviva who pulled out of the Professional Indemnity Market for its small and medium sized risks in 2013.
RSA director of professional and financial risks Patrick Brice said the firm remained committed to a role as a leading professional indemnity insurer. "As part of our strategy to improve the business performance of the Group we are sharpening our focus on target markets and segments where we can deliver sustainable returns and growth". "We have reviewed our professional indemnity portfolio and in the future we will focus on specific areas where we can best deliver value and service to our customers and brokers." Source (Insurance Age)
Hammond Professional Indemnity Consultants Director, David Hedgecock said " This follows in the wake of several insurers thought 2013-14 who are looking to rationalise their book of Pi business following what have been a difficult period for insurers in respect of claims and falling premiums from some newer insurers". We have many alternative markets for these risks and will be doing out utmost to support those in the market who are seeking alternative providers for their professional indemnity Insurance.