Insurer: provides insurance

Broker: facilitates and provides guidance

Insured: seeks insurance
Causes for insurance: tort of negligence, legal liability (e.g. breach of duty to
the public, to third-party)
Insurance covers: property/material damage, personal injury, economic loss
(e.g. financial, due to delays, etc).
Policies: set the terms of the insurance. Policies of indemnity. The policy is therefore written
on the basis that it covers claims made during the period of insurance. The period of insurance of professional indemnity policies is usually 12 months.
It follows that a professional indemnity policy will cover claims made against the insured during that 12-month period.

Premiums: annual payment

Insurance coverage: limit to indemnity. It also covers the legal costs of
defending themselves when allegations of negligence are brought against
him.
Adjusters: they survey, investigate, report and set the monetary value of the
dispute (i.e. quantify the loss).
Solicitors: know the law and proceed with claims in litigation process. They
assess the tort, not the monetary value.
PII: to provide indemnity when negligence in the exercise of the construction
profession
Negligence: not exercise the reasonable care and skill of a competent
engineer.
Fitness for purpose (warranty of performance): works as intended (by the
owner). This extends the liabilities and hence the risks for consultants. Also, it
might be excluded from policies as abnormal duties or extended
responsibilities not covered... IT imposes a higher duty to achieve a specific
result.
Need to find ways to limit liability vs. clients trying to increase it.
PI Claim: situation or event that requires the intervention of the insurance.

This

can be as a result of problems such as; delays, changes, unforeseen circumstances, insufficient information, and conflicts. Claims might be made
for loss and expense, extension of time,

damages and so on

Duties of parties: good faith, disclose the facts, to understand the risks. Also
from insurers to advise and pay if its their right.

Collateral warranties: again, extension of responsibilities. Create direct contractual

relationships between parties that would not otherwise exist. A typical example would be where an architect of a new office development
owes a

care to an occupier of the development in so far as any subsequent defects which may arise are concerned.

Law of contribution: shared responsibility means that you can pay 100%
regardless of your contribution.
Continuing duty to warn!
Problems with expert witness: they can be swayed, or persuaded and they
can take parts. They can become unreliable.
Differentiate negligence (breach of tort) from errors of judgement (not liability
of a professional).
What we can do:
1) Make sure agreements are written in e clever way (but even-handed!).
Limit liability in writing (e.g. a multiple of the fee). Written specific,
complete and relevant.
2) Better define or show what standard procedure is and what it is to be
expected.
3) Set databanks to minimise defects or problems for future, reduce
incidences and hence reduce losses of premiums.
4) Explore more alternative dispute resolutions.
5) Improve education regarding fair risks.
Problems of the industry:
1) Waste of litigiousness
2) Increase liability and rise (escalating) in premiums and sums paid out
for insured costs leads to extreme caution.
3) This has the effect that:
a. Increases construction costs
b. Stifles innovation and the raise of standards.
4) Rising of claims can hinder development of smaller companies.

Summary: avoid collaterals, fitness for purpose or other form of extended

liability.

Reasonable skill vs. FFP: this is especially problematic in D&B contracts, as in

this case the contractor is more seen as a seller of goods (not a service) and
hence implied responsible for the FFP.

In performing the Services the Consultant shall exercise all the reasonable skill, care and diligence to be
expected of an appropriately qualified and competent consultant experienced in carrying out equivalent
services for developments of a similar size, scope, complexity, value and purpose to the Development.
Most professional indemnity (PI) policies will cover the holder only in the event of a claim arising out of the
holders professional negligence (i.e. a failure to exercise reasonable skill and care). This leaves the
designer uninsured against a contractual claim for breach of a fitness for purpose obligation. Where a defect
arises and no allegations of negligence are made (when the employer doesnt need to prove negligence,
why would he allege it?), the policy is unlikely to respond to the claim and insurers may refuse to pay costs
associated with the defense of the claim. Further, not only do PI policies generally expressly exclude a
fitness for purpose risk (since it is difficult to quantify this risk in respect of both probability of occurrence and
magnitude of loss), some may even be completely invalidated if a consultant has agreed to any fitness for
purpose obligations within an appointment. Whilst the consultant may therefore suffer uninsured losses,
employers need to be careful too as this may seriously limit their potential for financial recovery.

In light of the potential absence of insurance coverage, it is reassuring that many design and build contracts
(for example, the JCT and ICE contracts) contain express provisions which absolve the contractor from a
fitness for purpose obligation. They limit the contractors liability for design to the standard required of an
architect or other appropriate professional designer, thereby imposing a reasonable skill and care obligation
with the intention of overriding any implied or common law fitness for purpose obligation.

Even if an appointment expressly provides for a performance obligation of reasonable skill and care or is
silent on this matter, a consultant should be aware of not entering into a collateral warranty with a fitness for
purpose obligation as he will automatically

It is of fundamental importance for both parties to consider the issues

relating to risk and responsibility when negotiating any construction contract,
but particularly where design and build are combined. Absolute obligations
for fitness for purpose relating to design (regardless of whether that
obligation includes such express wording) should still be approached with
caution and diluted where possible, as a reasonable skill and care clause may
not offer much protection against an absolute obligation to achieve a certain
standard of work.
For contractors, the risk of performance to a higher standard must first be
identified and, if necessary, counterbalanced by seeking to limit their overall
liability under the contract or else by pricing it into the deal but always with
the awareness of the consequences for PI cover. Employers must balance
their desire to ensure that the completed works fulfil their requirements
against the danger of imposing uninsurable obligations.

DISPUTE RESOLUTION:

1) Litigation: going to court (TCC) to resolve a dispute : provides extreme

decision (not settlement) but can increase costs (although might be
fast)
2) ADR: need to be specified in the contract (JCT NEC, etc). Negotiation
and good faith.
a. Adjudication: if not specified, then it is statutory procedure. IT
has timetable and is binding. It investigates (initiative). Speedy
and less expensive.
b. Arbitration: third party decides. Legally binding. Private.
Expensive.
c. Mediation: mediator promotes an agreement that is considered
acceptable by both parties. Gives assessment and assists.
Agreement is written down and is binding.
d. Combination (tiered)
3) Effort to promote ADR, including possibility to not awarding the legal
costs payments if considered the