Agreeing Limits of PI Indemnity An important aspect of many AGS Members’ advisor appointments is the extent to which the client requires them to carry PI insurance and, if so, for what period of time.
The requirement should reflect the actual loss that might arise which in turn will depend upon a number of inter- related factors such as:-
• the nature of the advisory services to be provided and the size and complexity of the project.
• the method of procurement adopted and the extent to which financial losses may be incurred if, for example, the project is delivered late.
• the extent of any high risk activities such as work on contaminated land and the level of fees being earned by the engineering consultancy on the project.
• the extent to which any design work might be used on a repeat basis.
Clients are advised to require their advisors to carry a reasonable limit of indemnity to meet their potential financial liabilities subject to its availability at commercially reasonable rates.
Agreeing Limits of Financial Liability As advisors are generally only able to fund risk to the extent that it can be insured, clients should accept that caps on financial liability agreed in the appointment contract must in some way relate to the PI available to the advisor. In this way, both clients and their advisors achieve a degree of certainty as to the liabilities of each to the other.
This strategy offers better protection to the client than imposing onerous liabilities for which there is no possibility of protection by insurance.
Unlimited liability only exists in theory.
Recommendations The continued availability of adequate Professional Indemnity Insurance is clearly in the interest of all clients.
To achieve this, their advisors and designers need to be able to present a risk profile that is reasonable as to amount, certain as to time and based on the discharge of their own responsibilities rather than those of others.
As a result clients are advised to incorporate the following provisions into their appointment documents:-
• a provision that limits the advisor’s liability to an amount no greater than the amount recoverable under his PI arrangements.
• a "net contribution" clause such that the advisor ENVIRONMENT INDUSTRY MAGAZINE |105|
will only be liable for that proportion of any loss which is directly related to their own actions.
• a clear point in time, from completion of the services, after which the advisor will be freed from liability and any requirement to maintain PII on the appointment.
It is important for clients to satisfy themselves that the PI arrangements put in place by the advisors they retain are in accordance with the requirements of the conditions of engagement.
As PI claims can take a considerable period of time to settle, clients should also seek reassurance that the advisors and designers they employ only place cover with reputable insurers having a long term commitment to the class of business - even if this means higher premiums and higher fees.
If in any particular circumstance a client feels that the level of his advisor’s PI is inadequate, the client can either make arrangements for the consultant to increase the level of cover - in return for payment of any additional premium that is required or make his own alternative arrangements to ensure that additional finance will be available if required.
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