Many surveying firms take out PI insurance against subsequent claims of inaccurate valuations, but the premiums for insurance have risen in the last few years due to the amount of legal action that has been taken by lenders, particularly the big banks and building societies. Several smaller surveying firms have apparently gone bankrupt due to the amount of litigation that has been instigated.

Much of the litigation is due to the discrepancies caused by surveys made prior to the economic crisis of 2007 / 2008. Since that date, house prices have fallen nearly ten percent since that date nationwide. The largest losses have taken place in the North and the North West of England, with a drop of nearly fifteen percent while the average drop in London has been less than three percent.

Court action has been justified by the mortgage lenders because borrowers have been unable to make adequate repayments on loans which were taken out for properties which were overvalued at the time.

Solicitors acting for companies sued have commented that the big lenders have only themselves to blame for poor lending criteria and should not blame the surveyors who were only giving valuations which seemed accurate at the time.

Countrywide plc, which has a surveying arm together with its property management and real estate arms, reported in its annual report that it had suffered an exceptional number of professional indemnity cases. It has had to put up its fees substantially to compensate for payments made when litigation had been upheld.

In the GMAC case, Countrywide had been sued for a large price difference between the surveyed value of a property in York and its eventual selling price. The difference apparently amounted to an astonishing sixty thousand pounds.

The judge in this case found in favour of Countrywide and said that the lender had not made sufficient enquiries into the income potential of the mortgage borrower and if it had done so, the loan would never have been agreed to as there was evidence of an inability to make satisfactory payments.

In the wake of the Arch Cru fund failure and the Keydata collapse, advisers have been warned that they may be facing professional liability insurance premium hikes in addition to levies from the Financial Services Compensation Scheme.  The recent decision of the FSCS to enlist the aid of solicitors Herbert Smith in order to recover funds from approximately 500 IFAs which sold Keydata products is the impetus behind the potential insurance hike, with many providers wasting no time in pointing out policy exclusions which would preclude them from paying out on FSCS claims, while others have ceased writing new IFA business cover completely.

In one instance, one insurer informed its IFA client in a letter that due to these exclusions regarding insolvency and life settlement funds it would not hold any successful claims made by the FSCS as valid, leaving the IFA to twist in the wind.  Other insurers have gone one step further in their decision to cease writing new IFA cover, such as QBE Insurance Group.

The nature of the cover insurers were providing IFAs have been affected by both the impact of failed investments and difficult economic conditions, according to Howden Insurance’s retail director, Neil Pointon. The market may soon harden quite seriously, Mr Pointon added.

Chapters Financial director, Keith Churchouse, had a slightly different view.  In lieu of dramatic premium increases, Mr Churchouse said, insurers have instead decided to add more caveats and exclusions to policies instead.

The figures indicate that claims made due to bad cosmetic surgery are nearly twice as likely to be successful as those for general surgical procedures which have suffered complications.

The recent furore about breast implants in France and the suspicion that similarly poor procedures have been made with British women has brought the litigation figures to light.

The Medical Defence Union was recently reported to renew calls for all health professionals to take out pi insurance cover against claims of poor surgery and negligence due to the growing number of legal actions.

Of the main types of surgery where complications had resulted in legal action, the MDU reported that facelifts, weight loss procedures, eyelid modifications, nose reductions and breast enlargements were the most common. Some liability claims were in excess of ₤500,000.

The MDU’s figures show that of cosmetic surgery liability cases are successful in just under fifty percent of cases, whereas liability action for standard general surgery, i.e. non cosmetic, were about thirty percent successful.

According to the MDU, the reasons for the increase in legal action that it had noted were varied. One reason was simply that there were many more cosmetic surgical operations taking place these days compared to a decade ago. Another reason was quoted as being due to the fact that many customers were developing far too unreasonable expectations of success in the surgery and were not very happy when they didn’t get what they expected.

A more serious issue was the fact that too many surgeons were continuing to carry out surgery without conveying the options properly to the customers and gaining their consent in the right way. Along a similar vein, it was also thought that there were genuine cases of shoddy work being carried out by surgeons.

Apparently there have been some cases where patients have received scars and burns during their surgery by surgeons who did not have PI insurance.

Consultants have been told the financial bill as a result of the folding up of the CF Arch Cru funds as well as the crash of Keydata and could extend beyond just penalising FSCS (the Financial Services Compensation Scheme) charges to include increases in professional indemnity insurance fees.

The FSCS’s most recent resolution to engage the solicitors H. Smith to follow up almost 501 consultancy businesses which marketed SLS – supported Keydata goods remains at the core of a possible price increase by PI insurance firms.

Insurance companies have quickly responded to this deed, which is just the initiation of the FSCS’s effort to get back compensation that was paid out to investors in Keydata. Some have alluded to policy exclusions which translates into not paying out for such instances, whilst others have discontinued writing fresh IFA dealings completely

A written communication spotted by the “Adviser” from a Professional Indemnity insurer to its consultant client identified the exclusions that are found in policies and how consultants may not be directly covered for specific sales’ activities like those conducted with the Keydata product or CF Arch Cru funds, and for fees that have been slapped on to the FSCS’s legal struggle. It states that exclusions related to life settlement money and lack of solvency indicates it will not pay if the FSCS’s case versus the IFA was won.

The letter further stated that ‘it is quite evident that at the least, the insolvency of SLS brought about the demands brought on by the FSCS. Following on from this is that the bankruptcy exclusion also stops the claim being lodged.’ In this situation, there is no doubt in our minds that such exclusions are applicable and thus the claims furnished by H. Smith for the FSCS are not included in the conditions and terms of the policy concerned. We realise that this must be a disappointment to you, but the exclusions do actually apply in this instance.’

There are a number of PI insurance companies that have gone beyond this by making the decision to curtail taking on additional IFA business.

The chartered financial planner from O’Halloran and Co in Lincoln, Terence O’Halloran commented that he thought that the FSA might be trying to start up a customer redress scheme by using money from advisers.

The controversy appears to have been fuelled by a letter which has been sent out by the FSA on the 6th January to selected advisers asking them to show evidence of their PI insurance policies that cover for them for liability with respect to the CF Arch Cru affair. The FSA has also asked for these firms to provide copies of any former policy that they might have if the current policy was not valid at the time of the collapse of the funds manager.

Mr O’Halloran seems to think that the FSA does not have the funds to distribute of its own and presumably the 52 million pound compensation package which had been announced after the collapse was insufficient. He went on to speculate that the FSA was trying to make advisers pay for the mistakes that the watchdog was responsible for itself. He said that the cost to advisers of finding all the relevant information in such a short time is enormous.

The letter from the FSA contains a request from Mr James Barcroft, who works in the supervisory division at the authority, to advisers to retain sufficient funds to cover any liability which they are subsequently found to be responsible for with respect to advice given about the sale of CF Arch Cru funds. The investigation into the collapse of the funds manager is currently ongoing.

The letter is apparently a follow up to another letter sent out in mid December last year and, according to a spokesperson at the FSA, an “information gathering” exercise. The spokesperson refused to provide any more information when asked if it was intended to help provide funds for a customer redress scheme.

The letter distributed on the 6th January requests information about liability insurance details to be forwarded by the 13th January at the latest, giving the firms involved a maximum of a week to comply.

Most of the negligence suits have been filed by major lenders such as Barclays Bank plc and Lloyds. Countrywide, like many of the property surveyors, normally takes out professional indemnity insurance to protect themselves against claims of negligence, but in these cases is determined to fight the lawsuits tooth and nail.

A typical example of negligence brought up by one of the lenders is the case of a man called Suninder Sandha. He had an apartment inside a country mansion near Leicester, surveyed by Countrywide’s surveying department, and took out a loan with Barclays based on the surveyed price at 1.2 million pounds in 2005. When the property boom collapsed, so did the value of the property and Sandha was unable to keep up the mortgage repayments. Barclays has sued Countrywide for its losses, having seized the property and only being able to sell it for 500,000 pounds.

The number of cases of litigation that the company is facing appears to be far more than the number that any one of Britain’s major banks had in 2011. Countrywide was bought by Apollo Management LP in 2007 and since that date 97 cases of negligence, all arising from losses incurred due to the collapse in property prices, have been directed at the company.

The lawyer, who has been representing Countrywide and several smaller surveying firms facing similar litigation, stated that the blame for the losses really fell at the door of the lenders themselves. She said that the banks had suffered huge losses and were looking for a scapegoat. She said further that the lending practices the banks had been using at the time were the real reason for the huge losses.

Countrywide, which has additional property divisions as well as its surveying arm, put its charges up significantly in 2010, largely due to increasing premiums charges for PI insurance. The increase in premiums was as a direct result of the huge number of professional indemnity claims which the company was facing.

Elite Insurance stated in June 2010 that it had decided against entering the professional liability insurance market, citing a lack of crucial reforms to the rules governing policy wording and the assigned risks pool.  However, Elite’s chief executive, Jason Smart, has now remarked that market conditions have changed sufficiently for the firm to enter into the business liability insurance sector.

Elite Insurance has grown to a point where it is beginning the recruitment process for a specialist professional indemnity insurance provider and has begun to present to reinsurers, Mr Smart said.  The chief executive remarked that Elite is keen to enter the professional liability insurance market, despite the fact that the ARP has yet to have made any changes.

Mr Smart said that Elite’s previous concerns of last year in regard to the lack of any finalisation of changes to the pool had been allayed, now that the insurer now knows what changes will be implemented.  Elite will be approaching the marketplace through its existing solicitor relationships as an after-the-event insurance provider, according to the chief executive, as Elite has 2,500 solicitors that it has worked with through the past few years.

The new underwriting process for Elite will consist of two stages, as it calls upon its ATE insurance experience to examine legal firm operations as well as its in-house specialist professional indemnity insurance underwriter.

Probate professionals who have had the unwanted experience of a claim being made on a deceased estate from a seemingly valid person will know exactly how much of an issue this can really be, especially if the claim occurs after the contents of the will has been distributed. If no indemnity insurance policy was current before the distribution process the result could be mind boggling.

It appears that in at least fifty percent of cases that are referred to them with unfinished research have a lot of flaws in them which are extremely expensive to fix.

Some of the reasons stated for this arise from births to couples who never got married and those who come from solo parent families which, from an heir seekers viewpoint, are nearly impossible to find. The customary techniques of defining a family tree which depended on the age old institution of marriage which included children cannot be relied on today.

The internet as a research resource, which is commonly utilised by heir searchers when putting together family tree information, is quite obviously not accurate and omits important details so that a potential heir could be deleted.

Family movements are also greater as time passes so, if the heir searcher does not have a good international network, more errors can also be made quite easily.

It has been highlighted by a major insurance company that they no longer issue professional indemnity insurance policies to some heir searchers as too many claims have been generated.

A high level of activity is required in heir research as it is very important to be able to uncover all the necessary information about the family concerned. It is not really that surprising that small things are overlooked, particularly when a small heir searching business or even a one person business is undertaking the search.

The new app allows IT professionals and others to obtain PI insurance quotes and purchase insurance cover by using their smartphones. The idea is the brainchild of insurer “Professional Insurance Agents” who have arranged a contract with HCC International to help with distribution. The app will be able to be downloaded using Androids and Blackberries.

The company has also signed a contract to distribute PI insurance and PI cover for tradesmen using the app. Both of these two contracts are expected to be available commercially early this year.

The chief web officer at the company commented that the app was launched after a survey of a key retail chain’s sales being made through the use of smartphones. The idea was that if so many sales can be realised through a smartphone friendly app then why not sell PI insurance through the same way?

The thinking was that those people who found gadgets easy to use like IT professionals would find the facility beneficial and would pass on their new found interest to friends. The app would be useful to both tradesmen and professionals who often either need to have indemnity insurance cover for a particular job or need to show they have cover to clients. Being able to arrange cover over the smartphone quickly and easily would make it a very useful tool.

PIA, the app creator, is already in talks with four more large insurance companies expecting to complete deals in the first quarter of 2012. The senior underwriter of one of the companies commented that the new app from PIA made obtaining suitable PI insurance cover easy and fast: “a quote and payment for cover could be made in a matter of minutes”, it was said.

Although the app is designed with PI insurance particularly in mind, PIA says that there is no reason why it cannot be adapted in the future to cover other aspects of insurance equally effectively.

The Law Society’s proposals were outlined in a draft response to a consultation initiated by the Solicitors Regulation Authority on changes to professional indemnity insurance which they are contemplating.

At present the scheme allows for law firms to pay the first ten million pounds in an indemnity claim with the insurers paying the next ten million pounds and so on until the claim reaches sixty million. After that point the insurers are liable for any further amounts. The scheme had been established when the majority of law firms were part of the ARP (assigned risk pool). Last year many fewer firms were in the pool and this drop is likely to be sustained in 2012 and going forward into 2013. At the same time the majority of claims do not exceed ten million pounds which would result in the law firms having to pay up all of the amount due.

The Law Society’s proposals would see any amount of liability up to sixty million pounds being shared on an equal basis between law firms and insurers with insurers picking up the tab past that threshold amount. This would still mean that with a particularly big indemnity insurance claim of say sixty million pounds law firms would be paying thirty million as their share but as the majority of cases are less than ten million would only be paying half of the amount rather than all of it as under the present arrangement.

After 2013 the ARP will no longer exist and the SRA is proposing that insurance firms will need to allow a thirty day extended indemnity period or EIP if the law firm that has had insurance up to that point cannot find insurance for the following indemnity period. The EIP would be extended by an additional sixty day period if the lack of insurance cover persists.