Professional Liability

From supervision in lockdown to legislative and regulatory change, we offer our international experts’ predictions on the opportunities and challenges that the professional indemnity market may face in the coming year and beyond.

Professional Liability predictions
#1 Accountants: Accounting exposures increased by COVID-led recession

2021 will usher in an increase in audit negligence actions. Fraud is often the bedfellow of companies that teeter on the brink of insolvency and auditors that fail to uncover fraud make obvious targets for those who suffer losses as a result of corporate failures. The recent Financial Reporting Council formal consultation on changes to accounting standards to impose a new duty on auditors to uncover fraud will only encourage claimants, even though the new standards will not apply retrospectively.

#2 Accountants: FRC increasing its investigations of challenger accountancy firms in its mission to raise audit standards

The recently enlarged Financial Reporting Council (FRC) enforcement team will look beyond the Big Six, increasing its investigations of challenger firms.  The new Audit Enforcement Procedure lowers the threshold for investigations, and the FRC is now investigating audits which would not previously have been on their radar.  Insurers should expect to see an increase in the number of notified regulatory claims and should note that challenger firms, lacking the experience and resourcing of the Big Six, may need to lean heavily on external advisors.

#3 Accountants: tax litigation on the rise in 2021

Claims regarding common taxes are increasing and set to continue. The Chancellor of the Exchequer will, at some point, have to consider increasing taxes to pay for the benefits provided during the pandemic. The system is already incredibly complex and each year it applies to a greater percentage of the population. Calls to reverse those trends and simplify taxes are now likely to be resisted unless they increase the overall tax take or have some political gain. Increases in capital gains tax are currently being considered. Will we see changes to business rates reliefs or even the loss of the main residence exemption? However, doctors being hit with large tax liabilities for doing extra shifts may get some relief.

#4 Brokers: business interruption losses will drive claims in 2021

As predicted last year, the hardening market across many commercial lines has already increased risks for insurance brokers, as they have been faced by reductions in capacity and available markets for their clients’ insurance requirements. The risk of E&O claims will be increased by COVID-19; in particular claims by commercial customers (many being SMEs) facing business interruption losses caused by the measures taken to prevent the spread of the virus. While the Supreme Court decision in the FCA test case seeks to bring clarity to this very complex area, there will be customers who will claim they should have been advised to take out business interruption cover that would have responded to the pandemic.

#5 Construction Professionals: increasing claims against construction professionals in the wake of the COVID-19 pandemic

The post-COVID landscape will see increasing claims against construction professionals.  The disruption and lack of continuity will have provided fertile ground for errors to arise.  We can expect to see more negligent inspection and negligent certification claims due to quality issues arising during lockdowns and the shortage of resources on site, both professional and contracting.  Shortage of resources and difficulties with supervision within professional practices may also lead to poor design or lack of co-ordination of design work.  Increased financial pressures and insolvencies in the supply chain are likely to ultimately result in more adjudication claims against professionals following employer v contractor payment and counterclaim adjudications.

#6 Education: ‘value for money’ claims on the horizon

With the move to on-line teaching, both independent schools and universities are coming under scrutiny in terms of providing value for money.  The Office of the Independent Adjudicator has made it clear that universities should engage with students’ concerns and complaints individually and not pursue blanket policies such as a refusal to consider tuition fee refunds or requests for deferrals.

#7 Financial Advisers: increased use of technology following COVID-19 pandemic will leave financial advisers exposed

The COVID-19 pandemic has necessitated firms to act quickly to adapt their business to find technological alternatives to the traditional face-to-face advice model, especially for older and more vulnerable clients.  However, if financial pressures result in corners being cut, then we can expect to see mis-selling issues in the longer term. The rapid change in working practices caused by the COVID-19 pandemic will also have put pressure on systems and controls like anti money laundering checks, record keeping and confirmation of instructions and could give rise to data and privacy issues.

#9 Pensions Investment: new social and moral obligations on investing for pensions funds could leave trustees vulnerable

Environmental, social and corporate governance (ESG) concerns have not historically been at the heart of pension investing decisions. This is changing. Since October 2020 new obligations have come into force requiring all pension trustees to publish annual implementation statements explaining how they have complied with their ESG and stewardship policies. Contract based providers also have new requirements that came into force in 2020.  Taking these important issues properly into account and investing appropriately is important for future generations. Now not doing so leaves the trustees more vulnerable to claims from members and sponsoring employers.

#10 Solicitors: the tub-thumping threat posed by claimant law firms

The threat of claimant law firms attempting to drum up forms of class litigation against lawyers is likely to continue as there are several funds looking to support such work and the pandemic slowdown has created the appropriate background circumstances.  In the past, we have seen this in areas such as the right to buy litigation; vibration white finger claims; buyer-funded investment scheme actions and multiple dwelling relief claims, often leading to group litigation orders or multiple sets of proceedings being jointly managed.  The nature of future claims is inevitably less certain, although a deepening trough could lead to another wave of lender litigation.

#11 Solicitors: supervision is key to survival for solicitors as lockdown continues

The pandemic has had a marked effect on the way solicitors work and will continue to do so. Solicitors have shown they can work at home but, to succeed, firms will have to ensure they find effective ways to supervise, motivate and mentor staff.  Well-being issues need to be considered with strategies in place to identify issues and provide support.  Firms must also address the inevitable risk that isolation could threaten existing supervisory structures and that with the erosion of such systems comes exposure to claims and regulatory action.  Both have a financial and reputational impact and, with the introduction of the SRA Standards and Regulations in November 2019, firms will need to ensure they are taking their supervisory obligations (in their widest sense) very seriously.

#12 Surveyors and Valuers: the challenge of legislative and regulatory change in 2021

Government initiatives abound for surveyors and valuers, but until most are advanced it is impossible to predict what the full impact will be.  The Regulation of Property Agents’ working group has called for an independent regulator, licensing for all agents, a new code of practice, mandatory qualifications and more powerful forms of redress.  Wholesale reforms in the leasehold sector have been recommended by the Law Commission.  The Independent Expert Advisory Panel has issued several advice notes around building safety.  Finally, the Government has announced the intention to relax planning requirements to facilitate the repurposing of defunct commercial and retail properties into housing.  Uncertainty surrounding the extent of these changes makes it difficult for property professionals to prepare fully. Tighter professional regulation will inevitably create risks for even the best run practices, particularly when linked to the ever-growing raft of legislation on safety and space requirements.  The loosening of planning constraints will require extra vigilance to ensure building regulation requirements are satisfied.  And with thousands of leaseholders finding themselves unable to sell or remortgage their homes if external wall systems are present or adverse ground rents exist, clarity cannot come soon enough.  All of this will require robust systems to ensure additional risk is not carried through to PI insurers.

#13 Surveyors and Valuers: increasing volatility and uncertainty heightens valuation risk in residential housing sector

As restrictions eased after the first lockdown, the resurgence in the housing sector was nothing short of astonishing.  This was not simply the product of pent-up buyer demand, as changing priorities caused premiums to attach to properties offering private, outdoor space.  Competition further drove prices in the most sought after locations, fuelled by the decision in July 2020 to temporarily reduce stamp duty.  But there is consensus that this is unsustainable beyond the short term, with the Centre for Economics and Business Research predicting prices could fall by 14% in 2021. All of this merely heightens the risks for valuation surveyors.  Many are stretched due to the levels of demand but time pressure risk is, of course, nothing new.  However, many are now also increasingly being asked to explain themselves for down-valuing against agreed sale prices.  This is not surprising as many sales are currently being agreed above asking prices yet valuers must ‘follow’ the market rather than ‘lead’ it.  Standing firm is essential, otherwise a post-pandemic economic recession would prove extremely costly for the profession and their PI insurers.

#14 Surveyors and Valuers - a New Zealand perspective: New Zealand property market defies predictions of the bubble bursting

New Zealand’s property market is one of the most inflated in the developed world.  Despite early predictions that COVID-19 might finally cause the property bubble to burst, the opposite has occurred. The number of well-heeled ex-patriates returning to New Zealand has driven a further increase in property values.  In the short to medium-term (at least), that is good news for insurers of professionals in the property sector, including valuers, real estate agents and conveyancing solicitors, as rising values will continue to mask or mitigate losses from negligence.

#15 Surveyors and Valuers - a New Zealand perspective: valuers’ liability insurers on more solid ground following High Court decision

A recent decision in the High Court of New Zealand has overturned previous authority on valuers’ disciplinary matters. The High Court held that valuers can be subject to adverse disciplinary awards for minor transgressions or breaches of their Code of Ethics. While this is unwelcome news for the profession, it may be a positive outcome for their liability insurers as defending valuers’ disciplinary matters on the amorphous grounds of whether their wrongdoing was ‘sufficiently serious’ to warrant sanction was ripe ground for disputes.

#16 Technology professionals: 2021 will see more claims and contractual disputes for IT professionals

Technology is firmly in the spotlight as COVID-19 has increased pressure on IT systems to support homeworking and other forms of remote interaction. Dissatisfied customers may seek to threaten or pursue claims in negligence or breach of contract if their IT systems are not operating to their satisfaction. Equally, economic challenges and significant changes to operating conditions (including COVID-19 and Brexit) are likely to lead some companies which have already engaged IT professionals to reduce or delay IT project spend, resulting in an increased frequency of contractual disputes on on-going technology projects.

Back to top
Legalign Global Logo