Is that free advice on your collateral warranty worth the price?
It is relatively commonplace for PI insurers to offer a “free” warranty checker service. This is undertaken by advisers that are hoping to pick up defendant claims work for the other PI insurers customers as the quid pro quo.
It is time-consuming and a loss leader that is generally pushed down to a paralegal (a nebulous concept that covers a multitude of competency levels) or the new trainee sat in the construction team.
Now, their instructions are to advise the insured on whether the terms of the document exceeds the PI cover available. Done well, this is informative and done well, the adviser doesn’t encroach on the commercial deal or suggest changes that have nothing to do with the PI cover. Done badly, such as a document before me now, they give advice that goes beyond their instructions (taking on a liability for which they are not being compensated and therefore, in all likelihood and rather ironically, not covered by their PI), puts the parties needlessly at loggerheads, and encroaches on commercial issues. Then, if challenged, they invariably retreat to say that they are not instructed to help resolve the problems they have just caused!
An example of this that I have currently and it is a beauty, is a paragraph advising a construction company not to accept LADs as they do not have PI cover for LAD liabilities….. (before anything is said, I know of plenty of reasons why you may want to resist LADs, but PI cover is not the most credible one). They even say on this project that from an insurance perspective, the LADs are a PI “deal breaker”!
For the avoidance of doubt, and to save being put into a difficult position by this “free advice”, the following are not insured by PI and no-one expects them to be:
- IPR issues
- Non-Payment risk and payment terms
- Criminal liabilities and regulatory breaches
- Delivery terms
- Powers of attorney
At the end of the day, these warranties and appointments need to be acceptable to your customer, their customer (if you are a subbie) and the bank funding the project. It is recognised by all of those parties that these documents have to be checked to ensure that they won’t breach your PI policy so that you have cover (after all it’s in their interests too). However, the majority of the other parties will have advisers that act for PI insurers, banks, contractors and subbies as well so if you end up with free advice that oversteps the mark, your reputation could be on the line. Be very wary of any free advice that tells you that you must have:
- Net contribution clauses – you will be putting yourself into a commercially destructive head to head with any funder and no-one is going to thank you for it – it is generally NOT an insurance requirement and everyone knows this so you can’t hide behind your PI policy
- Any watered down CDM obligations – if the contract wording reflects the wording in the Act, the PI policy should respond so there is no need to interfere and this is too important for everyone on the project.
- Anything that limits any obligations that are implied as a matter of common law – again PI policy will cover it and you don’t need this argument
If you wish to take further advice on the contents of this article or any other construction issue, please feel free to contact the construction team on 01242 246488