Posted By John Webster I know nothing of this case, however, would Mr Babb have been a CHARTERED surveyor, and if so would chartered status have been the ruling factor in determining his personal liability?

Posted By Arran Linton - Smith Details of the Merrett v Babb case can be read on the following web-site. http://www.lawreports.co.uk/civfeb0.7.htm Although this case is centred around a surveyor employed by a firm of valuers, the essence of the decision was that the professional person who carried out the inspection and made the valuation was the person on whom the purchaser in those circumstances relied to exercise proper skill and judgment. The reason the surveyor was not insured was that a bankruptcy order was made against the sole principal of the firm and the principal's trustee in bankruptcy cancelled the firm's professional indemnity insurance without run off cover My enquiries in relation to obtaining separate employee professional indemnity insurance was that, "no such insurance cover is presently available for that type of cover".

Posted By Robert K Lewis Looking at the case details the insurance cover is not an issue although it is an interesting point. The act was clearly in the insured period but the judgement indicates that even without the complication of bankruptcy etc there was a personal liability on the surveyor and that a personal contract in some way exists. This is outside of the scope of the person's employer and as the judgement clarifies - there is a Duty of Care and therefore grounds for action and compensation. I agree that much of this occurred because of the 'Chartered 'status, but it also applies when this is spuriously claimed - let us not forget that house purchasing and valuation are to a degree unusual and we cannot assume transferablity of judgements. Bob

Posted By Ken Taylor Interesting point! For the record, I'm not saying that we should continue paying run-off insurance cover (and, fortunately I'm not a consultant) but that I have seen the letter from the insurers, upon terminating professional indemnity insurance, saying that one should do so for at least 3 years in case of claims arising from the work previously undertaken. I don't know whether this would be needed of if it's a clever sales pitch - but it would be worth someone (or IOSH) finding out!

Posted By Phil Grace Professional Indemnity (PI) insurance is written on an entirely different basis to, for example EL. Practitioners will be aware that an EL claim is made some time after the incident (subject to Limitation) and the policy responds because it is written on a losses occurring basis. PI is written on a "claims made" basis. This means that the policy will respond - that is pay a claim - subject to there being liability. This is irrespective of the date that the loss ocurred or, in this case, the negligent act took place. Once premium payments cease, cover ceases. If there is the risk of a claim coming in at a later stage (perhaps becasue the loss has not been noted) then run off cover is necessary. This is not really a problem for, e.g. architects because they buy cover year after year. But when a company ceases trading for some reason..... In my (limited) experience of solicitors PI the practice often provides run off cover for retired partners since they would be exposed if a claim was made against them after they had left the practice. Sole practitioners in any of the professions must purchase PI cover, those working for a firm or partnership are covered under the "group" cover and so do not need to buy individual cover. It appears that this may be a case that has been decided on its own facts and as such its relevance may be limited to certain specific circumstances. I am awaiting further details of the case.

Posted By Phil Grace Further to my previous response I have put together the following - a cut&paste from several reviews. If anyone wishes for the full text write to me at phil_grace@norwich-union-insurance.co.uk -- sorry for the length of this item. The unfortunate action of the trustee should be noted and also the fact that there is existing case law which has already established the duty owed to a purchaser - this case does not set new law. In Merrett vs Babb, the court of Appeal held that an employee owes a permanent duty of care and can be personally liable for a claim of negligence against the firm from a dissatisfied client. This has now been confirmed by the House of Lords. At the time of preparing a mortgage valuation, Mr Babb was a salaried employee of a surveying firm. The sole principal of the firm was subsequently made bankrupt and, contrary to Royal Institution of Chartered Surveyors regulations, professional indemnity insurance was cancelled by the trustee in bankruptcy without run-off cover being put in place. Babb noted in his report that the property contained certain cracks, but he failed to point out that settlement had taken place. His report should have recommended further investigation by a structural engineer or a chartered building surveyor and the failure to do so was found negligent. Babb had used the building society's standard forms to prepare his report and had signed the top copy, providing his name and professional qualifications to confirm that he was not disqualified under the Building Societies Act. Details of his employer's name and address were also provided. One of the carbon copies was sent to the claimant - the purchaser - but this copy omitted the firm's name as well as the defendant's name or signature. Although the surveying firm had no contract with the purchaser, it is no surprise that the duty of care was held to exist. Babb being held personally liable to the purchaser was more unexpected. After all, the report the purchaser received did not name the valuer and Babb had no direct contact with the purchaser whatsoever. It is well known that a surveying firm owes a duty of care to the mortgage applicant in such circumstances, but the principal issue on appeal was whether the defendant, who was uninsured, also owed a personal duty of care to the claimant. The authorities were considered at length in the Court of Appeal and, by a majority, it was held that the surveyor who makes inspections and reports on residential properties on the instructions of a lender did owe a personal duty to the mortgage applicant. The majority judgment was delivered by May L.J., with whom Wilson J. agreed. A dissenting judgment was given by Aldous L.J. The court cited with approval the judgment of Park J. in the case of Yianni v. Edwin Evans & Sons [1982] QB 438, where a firm of valuers and surveyors, engaged by a building society to value a property for mortgage purposes, had been held liable to the purchasers in negligence, despite the purchasers ignoring a recommendation in the mortgage application form that they arrange an independent survey. The court also quoted with approval the following from the judgment of Lord Griffiths in the combined cases of Smith v. Bush and Harris v. Wyre Forest District Council [1990] 1 AC 831:

Posted By Ken Taylor I think we have our answer on the run-off PI cover issue now. Let the buyer beware - but more so the non-buyer!

Posted By Stuart Nagle I would like to suggest that that 'Chartered Status' is a point here. The purveryor of the service obviously put himself forward as an 'expert' which was relied upon by the client, via the company he was employed by. In this case, the client has a case for recourse against the 'expert' where a considerable 'error' in professional competence in handling the clients affairs was made - negligence !! On the matter of professional indeminty insurance, it is common with other professions, i.e Chartered Civil Engineers, and should be a standard of practice for all professionals offering their services as 'consultants'. In the case of the employed going to bankrupcy, presumable in an effort to protect his own interests in respect of the claim by the client, this effectively hung his employees out to the wolves. It would seem under these circumstances that changes should be made to protect clients and employees, and ought to be considered to improve the 'profession' as a whole. Take note insurers please !! Stuart Nagle