Under covered

Professional indemnity policies for construction professionals now exclude cover for terrorism claims and most will be excluding cover for asbestos-related claims, too, if they do not do so already. The wording of these exclusions varies and can be widely defined. Professionals will need to check the extent of the wording in their policies. Insurers may exclude liability in respect of any consequences whatsoever resulting directly or indirectly from terrorism (also widely defined) whether or not there has been any other contributory cause.

Professionals can be liable only for consequences that they have wholly or partly caused. The consequences of an act of terrorism would often be caused by that act of terrorism alone. Nonetheless, there may be situations where the damage could also have resulted from the negligence of a professional. It may be said that deficiencies in the design of a building had failed to prevent the act in question. A firm could have been instructed to design a building to withstand a particular sort of impact and failed to do so. Its faulty design may have resulted in greater damage being sustained.

Where professionals are practising without professional indemnity cover, they need to protect their firms in the event of a claim arising out of terrorism or asbestos by excluding or limiting liability in their appointments. This is unlikely to be possible in respect of current commissions or commissions carried out, as clients are unlikely to agree to bring in limitations, and unfortunately any claims that may arise out of those contracts will probably be covered only by policies that have these exclusions.

For future commissions, however, it may be possible to agree to exclude or limit liability in the appointment for the consequences of terrorism or other matters for which insurance cover cannot be obtained (although it is not possible to exclude or limit liability for personal injury or death), especially where the professional has no duty to advise in respect of these matters. If there is no such duty, this should be stated expressly. The services need to make it clear what the professional is being asked to do. Such an exclusion or limitation of liability may be considered reasonable under the Unfair Contract Terms Act. The non-availability of insurance could be a potent consideration in assessing whether or not an exclusion or limitation of liability is reasonable. Liability could be limited to the amount of insurance cover the consultant has at the time a claim is made. Although no such cover may be available now, the situation could change in the future.

The damage caused by a terrorist act could also have been caused by the negligence of a professional

An exclusion of liability in a contract is unlikely to be reasonable, however, where the professional (such as specialist risk management firms or asbestos inspectors) has a particular duty to consider and advise on terrorism or asbestos – where, for example, that is the very reason for his engagement. Here the professional will need to consider an appropriate level of limitation, for example a multiple of his fees.

These exclusions and limitations will not, of course, help if claims are made against professionals by third parties to whom they may owe an independent duty, as the contract terms will not bind them. These claims are the real danger and the most likely to result from acts of terrorism or the effects of asbestos and to involve personal injury or death.

The risk of such claims can, however, be passed back to the client through an appropriate indemnity in the appointment. It may well be that the client is best able to manage these risks, particularly if it is a government department. At the very least the lack of insurance cover should prompt an open and realistic discussion with clients about the risks involved.