Earl Gordon and Patrick Foote
We frequently get asked this question from members of The Property Institute, some with the knowledge that we are members of the Executive Committee of “Land Professionals Mutual Society” (LPMS) and some just because we have known, or worked with them.
Professional Indemnity Insurance is required to protect valuers from the financial effects of settling negligence and other claims against them. Generally, cover must be in place when a claim is made.
It is evident that if you undertake valuations for Banks and most other lending institutions, PI cover is required. Latterly, lending institutions appear to require cover for as much as the valuation, i.e. dollar for dollar. This, of course, is ridiculous but we have seen Valuers certifying that they have such cover, when we are aware that their cover is only a proportion of the value assessed. How can the risk be at 100% anyway?
Other lending institutions require that a proportionate amount of cover is provided in terms of the valuation completed. This is more logical, particularly when it is in the range of 10% to 20% of the value.
Executive houses in Auckland, sit in the range of $5,000,000 - $10,000,000 (and the odd one higher). This would require cover of $500,000 to $2,000,000. This is still a wide range and is it affordable when fee levels are taken into consideration?
Where can this cover be obtained? It can be sourced through insurance brokers, although it appears to be harder than in the past, and this is also evident in Australia. It can be obtained from, for example, QBE Insurance (International) Limited, Vero Liability Insurance Limited or a Lloyds syndicate. We have seen others come and go.
If not doing bank work, do you need cover? The answer would be yes. But if so, how much?
Should it be to cover only legal costs of any claim, or should it cover the full risk of a specific assignment?
This is a decision for every practitioner to consider very carefully to reduce their exposure to risk.
It is now standard practice to have signed Conditions of Engagement with your clients, limiting the extent of liability. We have seen some where the liability of the firm for damages or losses (in contract, tort or otherwise, including negligence) in any way connected with the services provided, would be the lesser of five times the value of the fees or $100,000 for example. This may be applicable in some contracts and is worth considering.
LPMS was incorporated in 1976 as a voluntary risk management organisation representing its members. It is not an insurer. LPMS has a unique insurance policy and a further strength is its Claims Committee system. It is also involved in Continuing Education.
The principal objectives of LPMS are to:
Guide members on the ways and means of avoiding or minimising liability claims and implementing risk management strategies.
Provide members with supportive claims assistance and administration, including quality technical, legal and insurance assistance.
Provide members with access to specifically tailored group professional indemnity and other liability insurance facilities on a voluntary basis.
Other benefits include one off cover and complimentary term life cover. It also controls the events arising out of a claim situation. There is an internal Claims Committee which examines all claims and provides support to member firms and to the Insurer. LPMS has as its insurance consultant and broker for insurance and claims administration, AON New Zealand Limited in Wellington. (Bryce Wilson – 04 819 4058 or Doug Morton – 04 819 4086)
Cover can be very expensive; however it is needed for members in many instances. When reviewing the appropriateness of your cover, carefully check not only the premium payable but also the insurance contract and the support provided (if any).
Unfortunately, there have been large claims in the past relating to professionals, including valuers, and insurance companies reflect the risk (and claims history) in the premiums they charge.