You may well ask why a lawyer is writing about professional indemnity (PI) insurance. The answer is as legal advisers to the property management industry, we regularly see managing agents with inadequate or, worse still, no PI insurance in place. And a badly worded (or non-existent) insurance policy can impact heavily on an agent’s ability to defend claims from disgruntled clients. Simple errors can lead to substantial negligence claims that can not only hit your coffers but also do long-term damage to professional reputations.
As lawyers we are accustomed to having sensible PI insurance to protect us when we face an inevitable claim from a client. Yet, whilst we live in an increasingly litigious society, the property management industry does not seem to have fully grasped the need to have cover that reflects their needs and challenges. We have given legal advice to property management clients on a broad range of claims, the majority of which could have been covered through focused PI insurance.
Professional indemnity insurance is an automatic condition of membership for ARMA, ARLA and other professional bodies and ‘off the shelf’ PI cover is quick and easy to source. The task lies in ensuring that the wording accurately fits your needs. So which specific property management matters can PI insurance provide cover for? Here are a few examples:
Defective service charge invoices can mean that expenses older than 18 months are unrecoverable, leading to claims of tens of thousands of pounds against the managing agent. A bespoke property management PI policy should provide cover for this.
Mistakes can occur when carrying out works; usage of the wrong materials when carrying out works on a listed building can result in the planning authorities requiring the works to be redone at considerable cost.
Many property management professionals acknowledge that service charges are not always collected in accordance with the terms of the lease. PI insurance can cover the managing agent for potentially costly challenges brought by leaseholders, who spot the errors.
When you take over a new block you inherit all the relevant documentation. Your PI insurance should cover you for loss of these documents.
Professional indemnity insurance is not a substitute for correct procedures and attention to detail. It does however give you the option to defend claims when costly issues arise, as echoed by Adrian Potter, Sales Manager of Deacon Insurance:
‘Deacon designed a specialist policy exclusively for Managing Agents, removing some of the covers not needed by the trade. This gives managing agents an inexpensive way of covering themselves for Professional Indemnity. The following example shows how one simple mistake or delay could lead to a claim of over £200,000, which, if not covered, would affect your bottom line profits and turnover.
‘Our Insured was appointed to manage the refurbishment of a block of flats, some of which were in private ownership. In order for the council to recover their costs from private residents, section 20 notices had to be served and the requisite notice period had to expire before work commenced. The insured appointed contractors before serving the section 20 notices, which delayed the start of the works. The contractor sued for costs incurred in the region of £200,000.’
As managing agents you’re no doubt comfortable with sourcing specialist block insurance. We encourage you now to familiarise yourselves with your PI policy to ensure it reflects your risks.
