Insurers are providing shrinking cover on terrorism and asbestos risks. Now consultants have new standard contract terms that shrink their liabilities to match
THE ASSOCIATION OF CONSULTING ENGINEERS last month published additions to the "limitation of liability" sections in most of its agreements. This move is a response to the restrictions on professional indemnity insurance cover imposed on consultants by their insurers. These affect claims arising out of terrorism or asbestos.

Most PI insurance policies now contain a blanket exclusion of cover for any claims arising out of a terrorist incident or action taken to prevent one. So if, for example, there is a claim that deficiencies in a consultant's design increased the damage caused by a terrorist attack, there would be no cover available to the consultant either for the damage to property or for any consequential losses, or indeed for any personal injuries or death that the incident might have caused.

The revisions to the ACE agreements therefore include a clause excluding liability for such claims unless they are covered by the consultant's PI insurance. Should cover be reinstated in the future, then this could be available to meet a future claim. The consultant can also include a statement, if it is the case, that they have no responsibility for designing or advising on, or otherwise taking measures to prevent, terrorism.

Insurance cover for asbestos claims has also been substantially restricted, if it is available at all. The widest cover consultants can obtain is limited to certain types of damage arising as a result of negligence, and there is a restricted aggregate limit of indemnity.

It is not possible to purchase cover for bodily injury claims. Many policies provide even more limited cover and there can be no certainty that cover will continue to be available at all in future years. This leaves consultants without insurance. They are therefore liable, personally and without limit, for all asbestos claims that are outside, or in excess, of their cover, and for all claims for personal injury or death.

Asbestos work is not like security work: consultants may be able to choose whether to undertake a commission that could include advice on measures to prevent terrorism.

However, many of the activities undertaken by consultants in the normal course of their practice could involve considering whether asbestos is present in a structure, or in the ground, and in advising on its safe removal or management. This could be the case in any ground investigation or remediation scheme, refurbishment or demolition project, in any maintenance, alteration and repair to buildings, or in giving environmental advice.

These duties will be extended by regulation four of the Control of Asbestos at Work Regulations 2002, which comes into force on 21 May this year. This deals with the management of asbestos in non-domestic premises under which consultants could become "duty holders".

The ACE has therefore introduced a clause limiting liability for asbestos claims to the amount of insurance, if any, that is available to meet the claim at the time it is reported. There is also an indemnity from the client to the consultant to the extent that any claim is not covered by insurance. This is to protect the consultant from claims from third parties (for example, following personal injury or death) for which no cover is available.

The existing limitations remain. These is an overall monetary limitation per claim, a net contribution clause and optional provisions for limiting liability for pollution and contamination claims.

However, a clause has been added limiting liability for any claims to the extent that there is PI insurance available to meet that claim. It is possible that further restrictions may be added to the PI insurance of the consultant in the future. The intention of this clause is to protect a consultant in these circumstances.

These limitations have been made conditional on the consultant complying with his obligation to maintain PI insurance. Further, it needs to be remembered that all contractual limitations of liability will be open to challenge under the Unfair Contract Terms Act, unless they can be shown to be reasonable.

'Breathtakingly cavalier' Ann Minogue writes on restricted liability and PI next week …