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Hurray for Hollywood

25 June 2021

Mark Klimt suggests that if construction projects are to continue to be adequately regulated and if Clients are to continue to be able to have confidence that the professionals whom they engage are properly qualified and fully insured for genuine problems, then co-operation will be needed from two unlikely sources, namely Claimants and legal service providers.

One of the sometimes Delphic sayings of the great film producer Sam Goldwyn which has pertinence to risk management is his maxim that "a verbal contract is not worth the paper it's written on". 

Co-operation 

Certainly the starting point in any attempt by a Consultant to establish a project on a sensible footing and to reduce exposure to risk is to have a written document which defines what the Consultant will (and just as significantly won't) be doing; the level of performance and limitations on liability. However, if projects are to continue to be adequately regulated and if Clients are to continue to be able to have confidence that the professionals whom they engage are properly qualified and fully insured for genuine problems, co-operation will be needed from two unlikely sources, namely Claimants and legal service providers.  If those parties do not heed the warnings represented by the changes in the professional indemnity insurance market over the past two or so years, and do not recognise how their interests too are bound up in preserving a system of sensible protection for sensibly assessed liability, they will have been complicit in threatening the quality and even the viability of future building projects, on which the country's economic recovery is heavily reliant.

Claimants have for too long presumed that where insurance money is involved not only do they have no obligation to mitigate loss but it is somehow within the rules of engagement that they may present as speculative and inflated a claim as they can get away with. Insurers are regarded as a monolithic force against which Claimants are  entitled - obliged even - to push as firmly and immoderately as they can.  This approach fails to take into account such recent factors as Insurers' defensive response to the uncertainty created by the Grenfell tragedy leading to wholesale exclusions of fire protection for consultants; numerous departures from the professional indemnity insurer market; and the reduced insurance capacity of those Insurers remaining in the market. The net effect is that those remaining Insurers are feeling increasingly vulnerable and are feeling obliged (and able) to impose conditions which have far-reaching effects on key areas of an architect's design activity, whether on past, present or future projects. 

Costs

A single-minded approach to legal costs adds to Insurers' discomfiture and undermines their efforts to set red lines and push back on claims where necessary. Successive initiatives such as pre-action protocols and mediations are often insufficient to convince a Claimant to modify its expectations and the parties are then required to go through various stages of litigation preparation. Solicitors, faced with having to complete an advance costs budget estimate for Court approval will tend to over-estimate rather than be held to a figure that is too low. Costs will inevitably then swell to fill the inflated estimate.   Meanwhile the fee regimen of barristers' chambers threatens to undermine Insurers' position not to mention prejudicing chambers' efforts to demonstrate their accessibility and their understanding of their Clients' commercial pressures.  A system which compensates a barrister for the risk of the case settling and of the barrister meanwhile having had to forego involvement in something else which might have developed into a long-running and remunerative matter, has led to Counsel's retainer or Brief fee being incurred in tranches that start to kick in significantly before the date of the trial and often run alongside the stages of trial preparation which continue to be separately charged on a time charge basis. It means that a defendant Consultant and its Insurers are in the unenviable position of having to calculate which is going to be more costly -  the external pressure of a Claimant holding out for an unrealistic settlement, or the internal pressure of looming escalation in Brief fees and other defence costs. Either way, Insurers risk losing out, and if they opt for a somewhat increased (earlier) settlement on commercial grounds, that will do nothing to discourage future, similar claims. That, in turn, is unlikely to encourage those Insurers who have departed the scene, to return to the market any time soon. 

Overriding duty of good faith

What is needed is a realisation from both Claimant and service provider that if insurance is to survive in an era characterised by blame culture, they each need to play their part in maintaining the overriding duty of good faith on which such insurance is based, rather than treating the insurance pot as being in some way removed from the extremely challenging prevailing commercial conditions. A recognition that they are both, in their different ways, dependent on the continuation of a system which provides protection against errors and omissions and that such a system needs to be supported rather than challenged or exploited variously by exaggerated and unreasonable claims or by a too doctrinaire and inflexible fee pricing system. To do otherwise risks falling into the trap identified by another Goldwynism, namely biting the hand that lays the golden egg.          

Further Reading