Loss Prevention Alerts

Loss Prevention Alert No 15 - PERSONAL PROFESSIONAL LIABILITY

This loss prevention alert has been produced by the Loss Prevention Working Group (LPWG) of the AGS.  It highlights issues that the LPWG considers may be of relevance to members.  It is not intended to provide a definitive response to any issues and before taking action members should consider carefully whether they need to seek independent legal advice.

Most individuals considering the consequences of professional liability can usually find two crumbs of comfort. Firstly, the liability will usually be covered by their professional indemnity insurers. Secondly, in respect of any uninsured portion or if no insurance was purchased, it will usually be the individual's employer who picks up the financial liability. The facts of Merrett v. Babb [Court of Appeal; 15 February 2001], although concerned with the liability of a valuation surveyor, might cause many professionals to consider: "there but for the grace of God ..."

Facts

The Defendant, Mr Babb, was a professionally qualified surveyor. He was employed by a firm of surveyors and valuers, Clive Walker Associates. The firm had about 20 branch offices but the sole Principal of the firm was Mr Clive Walker.

Following instructions from Bradford & Bingley, Mr Babb carried out a valuation of a property that Ms Merrett and her mother were contemplating purchasing. Essentially, it was held that the mortgage valuation report Mr Babb had prepared had failed sufficiently to notice and report on settlement cracks between an original building and a later extension, and this was negligent.

The mortgage valuation report that Mr Babb prepared contained on its first page a certificate in the following terms:

"I certify that I am not disqualified under section 13 of the Building Societies Act 1986 from making this report."

Mr Babb signed the certificate, giving his name and professional qualifications at the foot of the first page on the left. The date was then typed approximately in the centre of the page. To the right of this was the name and address of the firm, Clive Walker Associates. A continuation page was on the writing paper of the firm. This was signed by Mr Babb, again giving his professional qualifications, with the name of the firm typed immediately beneath his typed name. Mr Babb's valuation report was dated 1 June 1992. On 23 July 1992, relying on Mr Babb's report, Ms Merrett and her mother contracted to purchase the property. On 30 August 1994 a bankruptcy order was made against Clive Walker and the firm, Clive Walker Associates, ceased business. Contrary to the Professional Indemnity Regulations of the Royal Institution of Chartered Surveyors, the firm's professional indemnity insurance was cancelled by Mr Walker's trustee in bankruptcy on 2 September 1994 without run-off cover. Mr Babb, in his personal capacity, had no insurance indemnifying him against him professional liabilities.

One of the points of contention, both at first instance and in the Court of Appeal, was whether Mr Babb as an individual owed Ms Merrett a duty of care in and about the matters set out in his report. It was contended by Mr Babb's barrister that he owed his duty of care only to his employer, Clive Walker Associates, and not to Ms Merrett.

The Court's judgment

The Court held that a professionally qualified person giving advice may owe a duty of care to an effective recipient of that advice in addition to the duty owed to their employer. Lord Justice May said that he personally doubted that this was confined strictly to those who might be termed professionally qualified people, and that all would depend on the full circumstances in which advice was given. In any event, whatever view might be taken of whether liability extended beyond those professionally qualified to give advice, there was no doubt in the Court of Appeal's mind that Mr Babb was so qualified. The Court was also persuaded by the fact that Mr Babb signed the original report in his personal capacity and was, for the purposes of section 13 of the Building Societies Act 1986, the person who was competent to value the property, and was not disqualified from doing so. Accordingly, the Court held that he assumed personal responsibility for it.

The Court went on to the express the view that it was of course unfortunate for Mr Babb that he was not insured against this claim. The Court pointed out that in the main, professional employers will normally be vicariously liable for their employees' breaches of duty, and it may be supposed that a solvent employer's professional indemnity policy will normally cover claims against their professional employees. May LJ gave two important pieces of advice:

1. prudent professional employees will want to ensure that they are covered personally by their employers' insurance;
2. they may need to take steps to obtain personal insurance if their employers' insurance does not continue after their employment ends.

Prepared for the Members of the AGS by Steven Francis, DLA

Date of Issue: 16 May 2001