Surveyors
Surveying is one of the more established professions and as such is regarded by insurers as a 'traditional' profession. All Chartered surveyors are members of the Royal Institute of Chartered Surveyors (RICS).
The RICS is the industry governing body which regulates and promotes the profession. It also provides other services such as information and guidance to its members and the public. Not all surveyors are members of the RICS; there are some surveyors who operate outside the professional body and across a wide spectrum of activities.
Chartered surveyors and technical surveyors provide advice on aspects of land, property, construction and the associated environment issues. The profession is varied and many surveyors specialise in one or more fields.
What do Insurers look for?
Size of practice - One of the major factors that determine insurers' rating and underwriting criteria is the size of the practice. This is mainly established in two ways, the number of partners and staff and the gross annual income of the firm.
Qualification and experience - In line with underwriting philosophy
across the professions, insurers need to satisfy themselves that a surveyor is suitably
qualified and/or experienced to carry out the work undertaken on behalf of their
client.
Type of work - Insurers will be particularly interested in what
type of work the surveyor is involved in and the split of annual income derived
from each discipline:
- Quantity surveying - A quantity surveyor (QS) will calculate the bills of quantities in order to cost the project and pass the project out to contractors for tender. The QS is usually responsible for the interim certificate, a process by which the calculation of work completed and materials on site allows for a contractor to be paid. Once considered low risk but dependent on size and sophistication of the project it can be rated much higher.
- Building surveying - This relates to design work that is similar to architectural work but normally of a smaller and less exposed nature such as third party wall work and dilapidations. They will typically be involved in the design and supervision of standard type buildings such as houses, factories and warehouses.
- Residential and commercial estate agency - The sale function that may be carried out by the surveyor, either by conventional methods or by auction. Claims are infrequent and of low value and therefore this activity is considered low risk.
- Residential property letting management - Activities may involve the letting and management of both leasehold and freehold residential property on behalf of a freeholder. Low risk with claims mainly coming from “Slip and trip” incidents.
- Commercial property management / land management - The management of commercial buildings including maintenance, services provision and rent collecting. Commercial property managers are now also responsible for carrying out asbestos surveys on all commercial properties and ensuring an asbestos plan is in place in the event of any damage or alteration to the building. Medium risk
- Rent reviews / lease renewals - The owners or tenants of commercial property sold under lease may require the periodic assessment and review of rent being charged. A surveyor may be appointed by either the landlord or the tenant to carry out this function. Medium risk but increasing depending on the size of rents involved.
- Land / mineral and hydrographic surveying - Specialist area of activity - can include building site setting out, mining work and the analysis of land for minerals, water or pollutants. HCCI has a supplementary questionnaire for land surveyors that elicits the necessary information. Medium to high risk depending on the specialty.
- Planning and development - The formulation of preliminary plans and drawings and applications for planning permissions. Claims are infrequent so low risk.
- Project Management and Project Co-ordination - Projects are often managed, administered and controlled by an expert on behalf of the client. All other professionals and contractors involved in the project are appointed and paid by the Project Manager so that the client has only one point of contact. The Project Co-ordinator carries out much the same function except that the other professionals and contractors are appointed by the client. High risk for Project Managers and Medium risk for Project Co-ordinators
- Architectural work - Design of buildings and supervision of contracts. It is important to establish the contract values and the extent of the responsibility. Is it design only or is it design and full project management? Risk medium or higher depending on the extent of professional responsibility and contract value and complexity.
- Residential and commercial surveys and valuations - This is often a major area of work for many surveying practices and involves the inspection of buildings in order to ascertain their value. Risk is high where the valuation is used for lending purposes (mortgages) and lower for probate, asset or insurance purposes.
- Auctioneering - The valuation and sale of property and goods at auction. Low risk but increasing for fine art and antiquities
Other Factors
High risk work - Valuations provided by surveyors in the 1980's gave rise to a deluge of claims in the early 1990's following the property crash of 1989. The overheated 1980's property market led to overworked surveyors paying inadequate attention to property condition and comparable property prices which, when added to totally inadequate file maintenance and over enthusiastic lenders, led to a disastrous period of claims. Borrowers with financial difficulties defaulted and lenders found that depressed prices achieved on the subsequent sales were often inadequate to cover outstanding loans. Insurers suffered loss ratios up to and exceeding 400% in the early and mid 1990's and fear a repeat. They now look closely at the level of valuations carried out by a surveying practice, consider the amount of valuation business, the geographical location and the average and highest values as well as the claims experience.
Contract sizes - There is a direct relationship between the size and complexity of the job and the exposure.
Technology - Is the firm using 'cutting edge' technology or standard, tried and tested processes? The latter is considered lower risk.
Overseas exposure - Does the practice carry out work for overseas clients? Careful consideration would be paid to such work carried out for US or Canadian clients.
Retroactive exposure - Does the practice have an exposure to claims arising from past work, whether in the current firm or a former practice?
Environmental exposure - Does the firm knowingly get involved in
the environmental field?
Asbestos exposure - All commercial buildings within the UK need
to be assessed for Asbestos and a plan put in place in the event of works being
carried out. If a surveyor is involved in this work, the underwriters should be
notified. Often policies exclude or severely restrict the cover for the work.
Claims experience - The claims experience is an important determining
factor in the assessment of risk. This information usually reflects the type of
work carried out by a practice. It also reflects the quality of the practice's work,
staff, internal risk management and experience. Surveyors have one of the highest
notification levels of all the traditional professions.
Download
Surveyors brochure.Examples of claims
Negligent survey report - Residential survey failed to identify cracking in ground floor wall adjacent to tree. Following purchase property required substantial underpinning. Claim settled £22,000.
Residential valuation - Claim for over valuation pursued by lender against surveyor following repossession and subsequent forced sale of property. Claim settled £55,000.
Commercial valuation - Lender caught out in mortgage fraud recouped £2,000,000 from surveyor who had provided the valuation on a nursing home, despite not knowing the borrower and having no experience of commercial valuations. The fee was “too good to ignore…”
Planning claim - Surveyor instructed in a planning and development role in respect of the development of an industrial unit to be used as a storage and distribution depot for a major food manufacturer. Development of the site abandoned and claim for costs pursued against surveyor after it emerged that the correct approaches were not made to the local authority regarding access roads and a local brown-field site earmarked for residential housing. Claim settled £43,000.
Commercial property claim - Claim for costs pursued by tenants for alleged failures in property specification following a leasehold agreement entered into. Allegations included the failure of the surveyor and property owners to adequately provide temperature control and lighting conditions for electronic and laser equipment. Settled £12,000.
Quantity surveying claim - Quantity surveyor over-valued works completed by a contractor. Cost £500,000.
Expert witness claim - Quantity surveyor recommended client not to accept supposedly inadequate payment into court in contractor's dispute with client. The advice was based on incorrect quantity calculations. Paid £600,000.
Architectural claim - Dispute as to acceptability of sports hall roof height. Roof height needed to be lowered. Claim settled £500,000.
Building surveying claim - Alleged negligence following condition survey report. Surveyors instructed to inspect condition of residential property, draw up schedule of repairs and refurbishment work and invite tenders. During refurbishment work contractors discovered that major structural timber supports required replacement in order to successfully complete work. The claimant argued that if this information had been available he would not have proceeded with work. Claim settled £15,000.
Rent review claim - Surveyors instructed by claimant to investigate and negotiate with property freeholder following a rent review. Appeal failed after surveyors lodged an appeal after the deadline set out in the lease agreement. Claim settled for £70,000.
What else you should look for?
All Chartered surveyors in private practice are obliged by the rules of the RICS
to take out professional indemnity insurance with an approved insurer. The RICS
publishes a list of approved insurers annually. It is essential that brokers ensure
that this mandatory requirement is adhered to. HCC International Ins Co PLC are
an “Approved insurer” and our wordings comply with the RICS rules.
There are surveyors who offer professional services who are not members of the RICS,
but belong to other professional bodies such as The Association of Residential Letting
Agents (ARLA). ARLA is a professional self-regulating body solely concerned with
residential lettings. PI insurance is mandatory for all members. ARLA requires members
to purchase limit of indemnity of £150,000 where fee income is less than £150,000.
Where the income level exceeds £150,000 the minimum limit of indemnity purchased
must be £500,000.
The National Association of Estate Agents (NAEA). NAEA is the leading professional body for estate agents, membership and representation is for individuals rather than organisations. PI insurance is mandatory for principals, partners or directors but NAEA has no specific requirements on either the level of cover or the quality of cover purchased.
The Housing Grants, Construction and Regeneration Act 1996 - The biggest issue here for Insurers is the introduction of a standardised adjudication process to speed up the resolution of construction industry claims, cutting to a matter of weeks a process that has historically taken years. It is beyond the scope of this commentary to go into detail on the Act but it has had the following major effects:
- Insurers generally require notification of adjudication claims within a day or two. Notification of claims has always been an issue under PI policies but insurers have not normally taken issue with insureds over the matter of a day or two unless there has been clear prejudice. With adjudication claims, there is no room for latitude at all.
- Insurers will not allow those insured to compromise any right of appeal. So, they must not enter into any contracts that allow the adjudicator to finally determine a dispute.
Most policies incorporate a number of crucial clauses relating to the handling of adjudication claims. As ever, architects must read their policy very carefully to ensure that they do not fall foul of any of the requirements, in particular with regard to this Act.
Wording
The RICS has set minimum standards concerning the level of PI cover required by
their members. See www.rics.org
for full details. Some areas of importance are:
- Civil liability All wordings must be underwritten on a civil liability basis. In view of the fact that cover underwritten on this basis is so wide ranging, there are a number of additional exclusions not found under 'negligence' policies, and to which attention must be paid, e.g. employers and public liability, motor, and property.
- Limit of Indemnity – The rules require a minimum limit of indemnity, currently based on the firm's fee income.
- For fees of less than £100,000 the minimum required limit is £250,000.
- For fees of between £100,000 and £200,000 the minimum required limit is £500,000.
- For fees in excess of £200,000 the minimum required limit is £1,000,000.
- Excess – In addition the rules impose maximum excesses which will depend on the limit of indemnity. Where the limit of indemnity is less than £500,000, the maximum excess should be no greater than 2.5% of the limit of indemnity or £10,000 whichever is the greater. For indemnity limits over £500,000 then the maximum excess is 2.5% of the limit.
- Individual appointments - There are occasions when an individual partner, director or employee is appointed by a client rather than the firm. All policies will, under the definition of Professional Business, include cover for such individual appointments provided any fees are included in the declared fee income of the practice. If there are any differences of opinion as to what is included in the definition of Professional Business then again this is referred to the president of the RICS.
The usual cover
The RICS mandatory requirements ensure that the limit of indemnity will be 'each and every claim'. Legal costs incurred by insurers will usually be payable in addition to the limit of indemnity. The excess will not normally apply to insurers' own costs and expenses. When on a civil liability basis, unless specifically excluded, (which is unusual), cover would include negligence, libel and slander, breach of warranty of authority, etc.
The usual exclusions
Civil liability policies demand careful attention to exclusions so that non-PI exposures
are not inadvertently covered.
Typically, policies will exclude:
- Survey and valuation exclusion. The policy will exclude surveys and valuations unless they are undertaken by a suitably qualified person (RICS, ISVA, FFAS, RIBA, RIAS), someone who has five years' experience of such work, or other people provided they are supervised by a suitably qualified professional and permission is obtained from the insurers.
- Associated companies exclusion The policy excludes claims brought by firms, where the partners / directors have a controlling interest unless the claim emanates from an independent third party. Please note that some wordings have a much wider exclusion than 'controlling interest'.
- Asbestos exclusion The policy wording excludes any claims arising from Asbestos unless the claim relates to rectification and redemption or if the claim arises from any diminution in value of the buildings or structures, then the claim will only be dealt with provided it arises from a survey or valuation undertaken by the insured and that the survey or valuation has been conducted in accordance with the RICS practice statement. No indemnity is given in respect of any damage to property / land other than the property being worked upon by the insured and there is no coverage at all for bodily injury claims. Cover can be negotiated on specific cases but do check the level and degree of cover available.
- Pollution exclusion The policy excludes claims arising from pollution. The exclusion does not apply to negligent design or specification, or failure to report a structural defect in a property. However, cover would then be limited to the cost of redesigning, re-specifying, remedying and / or rectifying the defective structure, but shall not include the cost of remedying and / or rectifying any loss or damage to land, (in other words, they will not pay for clean up costs). Again, pollution cover can be bought from some insurers but do check the level and degree of cover available.
Other exclusions will include:
- Employers and public liability
- North American and Canadian jurisdiction
- Nuclear risks
- Claims and circumstances known at inception of the cover
- Onerous collateral warranties
