El culto al cuerpo y la belleza

Introduction

3.1 Why is professional indemnity insurance important?

3.2 Everyone involved in the building profession is human and that means that they make mistakes. Systems for carrying out checks to ensure mistakes do not go unnoticed exist, and although they have been improved by the use of computer technology, these checks are not infallible. Some mistakes go unnoticed.

3.3 In construction such mistakes are likely to occur either in the design or construction stages. In either stage the effect of a small mistake can range from being inconsequential to catastrophic. In this section the focus will be on mistakes in design. 3.4 Assume a design error is made in a large building causing it to collapse. The cost

consequences of this may be immense – some of the potential costs are detailed below:

• Making the structure safe in the short to medium term;

• Demolition of the unsafe structure and clearance of the site;

• Rebuilding or repairing the structure;

• Employer's loss of revenue whilst the building can not be occupied;

• Loss of profits and loss of property of businesses which may occupy the building;

• Additional costs for those businesses in relocating/finding alternative short term

accommodation;

• The building may damage other buildings when it collapses causing them to be

unsafe and creating similar losses in respect of them;

• Damages in relation to people who may be injured or killed if they are in the

building or in the vicinity of it when it collapses.

3.5 Even if only a couple of people were seriously injured when the building collapsed, the liability in damages for that alone could run into millions of pounds.

3.6 Everyone is going to want to recover the losses they incur as a result of the building collapsing. Under English law there are three ways in which such losses can be pursued. The first is to bring a claim under a contract. This is only any good if the person suffering the loss has a contract under which they can claim against the person responsible for the loss.

3.7 The second route is to bring a claim in negligence. Here no contractual relationship is required. In simplified terms, all the claimant has to show is that the defendant owed a duty of care to the claimant, the defendant breached that duty of care, and as a result of that breach of duty of care the claimant suffered some harm or loss which was foreseeable as a result of the breach of the duty of care. For example an engineer has a duty to the employer and users of a building to design a building with suitable foundations, if the foundations are inadequate it could be foreseeable that the building might collapse and injure someone. Each case will turn on its own circumstances. 3.8 The third way is a statutory claim. Some statutes create statutory causes of action. For

example these statutes provide that in certain circumstances an occupier of a property will be liable for the injuries sustained by people whilst they are on that property.

3.9 So how does this effect the engineer or designer? Typically the person or organisation responsible for the defective design will not be the same as the employer and will have become involved in the project in one of three ways.

3.10 Firstly the employer may have employed them directly to design the building and then directly employed a separate company to build the building. Here the employer will have a contract with the designer. The employer will be able to sue the designer under the contract for the costs it has incurred due to the building collapsing due to the design being defective.

3.11 Secondly the employer may have employed a contractor to both design and build the building and the engineer may be employed by the contractor as a member of the contractor's normal staff. The contractor will be liable for the engineer's error as the engineer is his employee. The employer will have a contract with the contractor and will be able to claim under the terms of the contract for the loss that it has sustained as a result of the building collapsing. In this case the contractor could claim against its engineer employee for the loss it incurs as a result, though it is rare for this to happen. 3.12 Finally the employer may have employed a contractor to design and build the building.

However, the contractor may have subcontracted with the engineer to carry out the design work. Here the engineer is an independent subcontractor and not an employee of

the contractor. There will be a contract between the employer and the contractor and a separate contract between the contractor and the engineer. The employer can claim for its losses under the contract between it and the contractor. The contractor can in turn claim its losses, including the damages it has had to pay to the employer, from the engineer under the contract between it and the engineer. However, the employer can also claim against the engineer in negligence for its loss, though the employer will not be able to recover more than a nominal amount if he has recovered all his losses from the contractor.

3.13 In this final situation it is also likely that the employer will have insisted on a warranty from the engineer and if so the employer will also be able to seek to recover its losses from the engineer directly under the warranty agreement. The rule on the employer not recovering its losses twice also applies here.

3.14 In all three situations any third party which suffered foreseeable loss as a result of the building collapsing would be able to bring a claim in negligence against the engineer. They may also have a claim against the occupier of the building under a statute.

Professional Indemnity Insurance

3.15 Very few organisations are sufficiently financially secure that they can survive the financial burdens of the amount and size of claims that would result from such a catastrophic error. If the engineer becomes insolvent as a result of such a claim, the employer will be left to pick up the loss. This could in turn make the employer insolvent, resulting in third parties not being compensated for their losses.

3.16 There has to be someone pick up the loss. As a result employers typically make it a contractual requirement that engineers or contractors carry professional indemnity insurance to cover losses which could arise from their errors. A contractor will typically require subcontractors to agree to identical terms regarding insurance to the contractual provisions on insurance subsisting between the contractor and the employer. Finally, even where the engineer is a subcontractor any warranty between the engineer and the employer will usually contain an identical insurance requirement.

3.17 What should be considered in taking out insurance?

3.18 Although many of the professional indemnity policies are similar, care should be taken when choosing a policy. Slight differences in wording may mean that one policy will exclude a risk another policy covers. What is covered will depend on the wording of the individual policy and any endorsements to it. Set out below are some of the key points that should be considered when choosing a professional insurance policy.

3.19 The first thing that has to be considered is how much insurance is required. Any amount of insurance can be acquired - but at a price. Usually policies will have an excess and an upper cap. The engineer will be responsible for claims which are below the excess limit and to the extent that they exceed the cap. The lower the excess and the higher the cap the higher the premium will be. Usually the contract will stipulate the amount of insurance that must be held and but this will be subject to such insurance being available at a reasonable market rate.

3.20 It must be considered what this cover includes. Does the policy provide that amount of cover against each claim made or is it against all claims made in a year? If it is against all claims made in a year then if one or two large claims were made on the policy in a year the holder may find that it has to meet the cost of any additional claims itself as the cover could have been used up.

3.21 When can a claim be made on a policy? Many policies will provide cover for one year and will require any claim made under the policy to made during the year of cover. However, some serious design errors may not manifest themselves until several years after the building has been completed. Liability for such errors can last for twelve years after completion of the building. If the engineer only has a policy requiring a claim to be made in the first year of cover they may lose the protection afforded by the insurance if they change policies and do not renew the original policy.

3.22 What claims can be made under the policy? Many insurance contracts will seek to limit the insurer's liability to paying for claims arising due to the policy holder's negligence – i.e. they seek to limit liability to claims in tort for negligence. This leaves the engineer policy holder exposed in relation to claims under contracts. As explained above, although often the engineer will not be employed by the employer it will enter into contracts with the contractor and will contract with the employer directly by giving a warranty to the employer. If liability for claims under these contracts is to be covered by the policy will often need to be expressly amended to include this.

3.23 Another complicating factor may arise in international contracts where one or more of the parties to the project works may not be a national of the country of the insurer. Consideration needs to be given to any geographical or other restrictions on the insurance policy. Where could proceedings be commenced against the policy holder? An insurance policy which only covers claims made in the UK or Japan for example may be of little use if the contracts, the nationalities of the parties and the location of the works allow for claims to be made outside the UK or Japan. Equally a policy which only covers litigated claims is little use if the contract provides for claims to be arbitrated or for them to go to adjudication.

Subrogation

3.24 What rights does the policy give the insurer? Most policies give the insurer a right to subrogation. In simple terms this allows the insurer to step into the policy holders shoes and defend or bring proceedings in the policy holders name. The actual scope of the subrogation rights may vary enormously from policy to policy and the way in which they are exercised may also vary. For example, the insurer may require the policy holder to defend proceedings but may take a role that essentially lets the policy holder run its defence itself, subject to consultation with the insurer and obtaining the insurer's agreement to certain key decisions, such as whether to settle and if so, for how much. Other insurers may take a more active role in proceedings, wanting to have complete control over them, to use their own solicitors, to make all decisions and the policy holder will be expected to co-operate completely with the insurer and do as it is told.

3.25 At the very least subrogation will be assumed to include a duty on the policy holder to act in good faith in any proceedings, to allow the insurer to bring proceedings in the policy holders name if the policy holder does not take that step itself, to take proceedings to reduce the insurer's loss if requested and a duty to account to the insurer for any monies recovered from a third party in connection with the insurance claim. For example, assume a design defect is partly responsible for the employer incurring losses of £2 million. The insurer pays out say £2 million on a claim under the policy held by the engineer and proceedings are brought by the engineer policy holder (whether at the insurer's request or not) against a third party who is also partly to blame for the employers loss. The engineer recovers £1 million from the third party. The engineer must pay this £1 million to the insurance company, for the insurance company to set off against its payment under the policy. The engineer can not retain the money and make a windfall out of its negligence.

3.26 What if the policy holder does not want to bring or defend proceedings? This is a real issue. For good reasons many engineers do not want to get caught up in litigation. It is time consuming, expensive, and the publicity can be devastating, particularly if they lose the case. This needs to be considered in the policy. For example, many policies will contain clauses saying that the insurer can only bring proceedings in the policy holder's name if it has obtained legal advice from a very senior lawyer and their advice is that there is a good chance of winning such proceedings. It is also wise to check that the form of proceedings – eg. litigation, arbitration etc does not conflict with the provisions of the building/design contracts. Another common limitation that is often sought by the policy holder is that the insurer shall not be able to require the policy holder to bring

proceedings against its individual employees who are at fault. A wish not to bring proceedings despite such advice from a senior lawyer is dealt with below.

3.27 Finally, is the insurance company financially sound? National laws in some countries, or the contract, may require that the professional indemnity policy is with a particular insurance company or a one of a number of insurance companies. If the engineer has concerns about the insurer's financial situation and believes that the company could be unable to make a payment under a policy, then they may wish to give some thought to ensuring there is some reinsurance in place should their fears be realised.

Other considerations

3.28 What else is there to consider? Finding a policy that suits an engineer's needs is only part of the process. There are a number of pitfalls, which need to be considered, both in entering into an insurance policy and also in complying with it. Failure to comply with certain obligations and the terms of the policy could result in the insurer avoiding the policy and not having to make a payment under it.

3.29 The first thing to remember when entering into an insurance policy is that it what is known in English law as a "contract of good faith". This means that there is an obligation on each party to provide the other party with all the information that they might require. This obligation arises because in deciding whether to agree to issue an insurance policy and where to price the premiums for the insurance policy the insurer will often be almost entirely dependent on the information provided to it by the engineer/policy holder.

3.30 So what does this obligation involve? Basically it means that the person seeking the insurance policy has to tell the insurer about any facts or information it has, (either within its knowledge or which it could establish from reasonable enquiries) which may effect the insurer's decision whether or not to issue the policy or on what terms. This means that the applicant must disclose information which may be adverse to it. It cannot lie and it must not withhold information either. If the applicant fails to provide information or the information provided is not correct then the insurer may be able to avoid the policy. If the applicant deliberately withholds information or provides false information then not only is the insurer entitled to avoid the policy, it is also not obliged to return the premium. Most of the information required to be disclosed to the insurer will be requested in an application form, which the insurer will require the engineer to complete before issuing the insurance policy. However, the applicant is aware of other information that the insurer might want then this should also be provided, or at the very least the applicant should ask the insurer if they require the additional information and provide it if asked.

3.31 So how long does this duty to provide information to the insurer continue? Basically it is an ongoing obligation and exists at least until the insurance policy is issued. However, many policies contain a term requiring the policy holder to advise the insurer of any material facts or changes to these as soon as it becomes aware of them, and the obligation will continue for the life of the policy. In particular the policy holder will be required to inform the insurer as soon as it becomes aware of even a possibility that a claim may be made against the policy holder – often whether or not this will result in a claim being made under the policy.

3.32 It is vital that the policy holder complies exactly with the terms of the policy – right down to the procedures set out in the policy. Non-compliance with policy terms is probably the most given reason by insurers for avoiding insurance policies. Some insurers will not automatically avoid policies for minor occasions of non-compliance and will sometimes waive their right to avoid a policy in limited circumstances. However, it must be remembered that insurance is a business and insurers do not make their profits by paying out under policies. Every time they have to pay out under a policy it cuts into their profits. Therefore, it is vitally important to ensure that the policy holder does not give the insurer a reason to avoid its policy.

3.33 So for example, if the policy states that potential claims must be notified to Mr X at the insurer in writing as soon as the policy holder becomes aware of them then potential claims MUST be notified to Mr X at the insurer in writing as soon as the policy holder becomes aware of them. Equally if the policy provides that the policy holder must bring proceedings against a third party at the insurer's request provided a senior lawyer advises that there is a good chance of those proceedings succeeding, then, provided such advice has been given by a senior lawyer and the insurer has requested the policy holder to bring proceedings against a third party then the policy holder MUST bring those proceedings. Failure to do so will allow the insurer to avoid the policy leaving the policy holder without cover.