In the final part of our series on how professional indemnity claims arise and how to avoid them, Marcus Elwes provides real examples of claims, plus risk management tips, from a leading insurer of RICS members. 

1. Residential survey/inspection claim
An informal complaint concerning the presence of damp is made to a RICS member, following the issue of a Homebuyer Report. PI insurers assist the member to work through the RICS Complaints Handling Procedure.

Liability is denied and the complaint successfully rejected because the inspection was only in parts of the property accessible at the time of the inspection, as illustrated in the Homebuyer Service.

The member had also said in the report that fitted cupboards prevented damp inspection.

Risk management tips

• Surveyors leave themselves exposed to claims by not recommending further specialist investigation
  This may be on the grounds of cost or the perceived disappointment this may produce on the part of the lender.
  
  
• Attach a checklist to the front of each file, signed off by a principal
  Having a proper signed retainer on file and a record of everything discussed with the client in writing is becoming essential, with surveyors under pressure to carry out many surveys each day, and with the onset of technology, which will allow surveys to be e-mailed to the lender almost instantaneously.

2. Valuation claim
A RICS member was instructed by developers to act on the sale of some plots on a new residential development.

It was subsequently alleged that the member failed to keep the developer advised of sharply rising prices, with the result that a number of plots were undersold by nearly £400 000.

The developer alleged professional negligence and pursued the member. Following referral to insurers, the matter settled for £90 000.

Risk management tips

• Never attempt to handle these claims yourselves
  Involve PI insurers right away.
• Ensure you communicate regularly with your client
  And monitor ongoing issues, utilise diary systems and keep abreast of market conditions, supervision and training.

3. Agency claim
A member agent was appointed by a landlord to market his property, organise viewings, make reference enquiries and set up the initial tenancy.

Some references were obtained and the tenancy commenced. The tenant soon defaulted on their rent, prompting the landlord to seek an Order for Possession.

He subsequently claimed against the member for his losses in the failed tenancy, to the sum of £4 500, because inadequate references had been obtained.

It was alleged by the landlord that the member had advised that the tenant’s references “were impeccable”.

However, the landlord requested copies of the references, which were incomplete. The member did attempt to obtain a reference from the tenant’s employer, but did not chase for a response.

This was because they were aware the tenant worked in a local supermarket, having spoken to them there!

In addition, no previous landlord’s reference was obtained, but the bank reference was deemed inadequate. The matter was subsequently settled on the best terms available.

Risk management tips

• Have proper procedures in place to obtain references in a standard format
  And ensure that these are seen by the landlord and signed off, prior to starting the tenancy.

4. Rent review claim
A RICS member failed to check the terms of a Deed of Variation drafted by solicitors, in a matter where they had negotiated the essential terms of a lease between landlords and their tenants.

The member was not specifically required to check the solicitor’s work, but failed to pick up on an obvious error made by not reading the document properly when it was forwarded for their comments.

By referring to additional rent payable as net of the profits instead of gross, the solicitor’s error resulted in the landlord suffering a loss.

5. Property - Management Claim
A RICS member acted as property managing agents for leasehold owners and landlords of a number of residential blocks.

The member’s duties included arranging periodic external works required by the freehold owners and installation of a CCTV/entryphone system and aerial upgrade.

It was subsequently alleged the member failed to comply with the requirements of Section 20 of the Landlord and Tenant Act 1985, when arranging this work, resulting in the tenants withholding service charges in the order of £400 000.

Risk management tips

• Diary systems
  Any critical dates should be clearly highlighted on the front of the file and centrally logged.
• Keep abreast of changes to UK legal framework.
• Using checklists, supervising staff and training
  And sound terms of engagement, including disclaimers and liability caps, will help mitigate such claims.

This article appeared in RICS Business, October 2006