The Willis Index

Contents

Surveyors Professional Indemnity

2007 1

The Willis and RICS VEAGIS Facility 1

Case Studies - Surveyors’ Duty of

Care 2

Willis Awards 3

About Willis 5

Meet the Team 6

Q1 2007

Willis is proud to have been involved in placingProfessional Indemnity Insurance for Surveyors since1978 when we set up the VEAGIS facility as a jointventure between Willis and the RICS (formerly ISVA).Consolidating our experience and leverage in the insurance market we have brought together four specialist insurers to become members of ourpanel. These are Norwich Union Insurance; CharringtonInsurance; Beazley IDL Solutions and QBE (Insurance)Europe Limited.

The professional indemnity policy the panel willoffer will be fully compliant with the RICS minimumterms and conditions, with markets approved asQualifying Insurers by the RICS. In addition the

following services will be available by some or all ofthe panel insurers:

l FREE Legal and tax helplinel FREE Employee assistance linel FREE Risk helplinel FREE Direct claims handing servicel Business Review and Risk Management service

The facility is not just limited to surveyors. It is alsoavailable to firms in the valuing, auctioneering, estateagency and property/project management professions,and this is only available through Willis.

Surveyors’ Professional Indemnity 2007If we only knew what lay ahead we would not fret andwe would not buy insurance! Unfortunately we cannotsee into the future, so we worry and we buy insurance– often reluctantly. We would like to have some ideaof how much insurance is going to cost and if it willbe available. Seasoned professional surveyors willknow, when talking about their PI Insurance, thatsometimes the answers to those questions have beenuncertain. In the recent past premiums have doubledand cover, both in quantity and breadth, significantlyreduced. Will this happen this year? It is very unlikely –there are still a number of insurers willing to writesurveyors and generally the market is competitive –but there are some warning signs.

The number of repossessions between January andJune 2006 was 8,140 – 76% up on the same periodin 2005 (CML). According to a recent reportcommissioned by the Daily Telegraph houses are attheir most over-valued for 15 years. Mortgages as apercentage of income – 23% – are at historically highlevels. In addition to this there are other debts, such ascredit card debt, to be serviced. The recent interest rateincrease will put further pressure on already stretchedhousehold budgets. Why is any of this of concern to aPI Underwriter? These are all signs of a possible slumpin the property market, leading to disgruntled lenders,leading to writs, leading to PI claims. A reality check isrequired. We are still nowhere near the repossession

levels of 1991 – 75,000. There are no signs thatinterest rates will scale the giddy heights of 15% and,although the market is cooling, there are noimmediate signs of a slump.

Another sector that is starting to cause concern isthe Buy-to-Let arena. A lot of the evidence isanecdotal at the moment but there are indications thatin certain regions the market is saturated. The returnsare now becoming dependent on capital growth andwith property prices cooling there could bedisappointed investors looking to blame someone –we are already seeing sizeable claims emanating fromthis area.

HIPs and the HCRs will have little impact as thegovernment toned down not just the content of thereport but, more importantly to us as PI underwriters,the minimum requirements have been diluted. Thosewith RICS compliant cover will have nothing to fear.

Underwriters are probably the last people youshould ask to speculate on premiums for the next yearas we would all want more than is currently beingpaid – in reality we see little change. Always ask: If itis cheaper, why? What is the claims service like? Havethe Insurers and brokers experience in this type ofInsurance? Do they have dedicated claims teams?

The need for quality of both Insurer and brokerremain paramount – the key is “value of money”.

– An Underwriter’s View

FINEX Surveyors’ Newsletter The Surveyors’ PI Insurance and Risk Management quarterly

FINEX, a specialist division of Willis,produces regular publications onthe relevant issues affecting theinsurance industry and the effect theyhave on various business sectors. Torequest editions of The WillisIndex, including Financial Institutions,Professional Indemnity,Directors' & Officers' Liability orEnvironmental Liability, pleasecontact Melanie Barnes onbarnesmx@willis.com

Willis voted “EuropeanCommercial Broker of the Year2006” by StrategicRISK magazinefor the second consecutive year.

Willis voted “Best and MostInnovative Insurance Broker ofthe Year” by Reactions magazinefor the second consecutive year.

Willis voted "National Broker of the Year 2006" by InsuranceTimes

The VEAGIS Facility

Case Studies – Surveyors' Duty of Care

... [in this case]

the court held

that, despite the

Smith principle,

no duty of care

is owed to a

third party who

is an experienced

businessman as

distinct from a

home-buyer.

A quarter of a century ago, in Yianni v Edwin Evans &Sons [1981], the High Court first held that anindependent chartered surveyor, carrying out amortgage valuation for a building society could alsobe held liable (in negligence) to a third party – thepurchaser of the house. This decision was laterendorsed by the House of Lords in Smith v Eric Bush[1989], where it was held that the surveyor could beliable where the purchaser never even saw thevaluation report.

The decision in Smith was in marked contrast tomost other negligence actions at around that time.Subsequent commentators have concluded that thedecision was borne out of consumer protection, theLords emphasising that in the case of a modestresidential property, it should be ‘reasonablyforeseeable’ to the surveyor that the purchaser wouldexpect also to rely on the mortgage valuation report.

A recent decision in the Scottish courts appears tosupport this theory, if only by distinguishing betweenthe scenario in Smith, and one where the partyinvolved was an individual with business experiencedealing with a residential development. In Wilson vDM Hall & Sons [2005], the Claimant was a propertydeveloper who owned a sports clubhouse inEdinburgh. In the early 1990s, he decided to demolishit in order to build six flats. Having estimated the totalincome from the sale of the flats at £276,000, and thedevelopment costs at £137,000, he applied forfunding from Dunbar Bank.

Dunbar bank instructed the Defendant surveyor toadvise on value/feasibility, and in March 1993 thesurveyor estimated the sale income to be £255,000,and the development costs at £150,000. The reporthad the standard clause disclaiming responsibility toanyone other than Dunbar.

In early 1995, the developer needed additionalfunds, and Dunbar therefore instructed the surveyor tocarry out a revised valuation – the surveyor re-valuedthe development at £306,000, and this time a copy ofhis report was passed to the developer. When thedevelopment was complete, the flats were marketed at£311,000, but they proved impossible to sell. Thedeveloper thus defaulted on the loan and Dunbarrepossessed the property. The developer commencedproceedings against the surveyor, alleging that thesurveyor had negligently over-valued the flats, withoutwhich they would have been marketed at a lowerprice and would have been sold sufficiently quickly torepay the loan.

Despite the surveyor’s disclaimer of liability toanyone other than Dunbar, the Court had to decidewhether the developer’s claim fell within the Smithprinciple, ie. was it reasonably foreseeable to thesurveyor that not only Dunbar – but also thedeveloper – would rely on his report.

2 Willis The FINEX Surveyors’ Newsletter Q1 2007

An artist's impression of the new Willis Building currently under construction in the City of London,

The Court found for the surveyor, concluding that“…in the present case, the pursuer presented himselfas a businessman of some experience, a propertydeveloper, undertaking a commercial development forprofit – and he was assisted in that by reputableprofessionals....the bank’s main business was loans forinter alia residential and commercial developments,

but not loans to home-buyers…. In such a contextpricing and marketing etc was a matter for thedeveloper in consultation with his ownprofessionals…Accordingly the surveyor instructed bythe bank to ascertain whether the property wassuitable security for a loan would not reasonablyexpect the developer to base his sale price andmarketing on the bank’s valuation report”. The judgealso added that there was insufficient evidence of anyestablished practice whereby banks ordinarily passedreports to developers in these circumstances.

So, perhaps unusually for the law, it appearssettled that a surveyor’s liability in negligence to thirdparties in such circumstances will depend very muchon the nature of the transaction and the partiesinvolved – and also that for mortgage valuations inconnection with the purchase of modest (as distinct,perhaps, from grandiose) residential accommodation, adisclaimer will not be upheld.

Continuing with defaulting borrowers, a commoncomplaint is that the lender has failed to realise areasonable market price for properties which havebeen repossessed. In Francis v Barclays Bank [2004],the borrower had no direct right of action against theprofessionals advising the lender, and thereforepursued the lender, who in turn pursued itsprofessional adviser. Francis also shows that thelender’s duty of care (and thus the adviser’s duty,particularly having regard to the adviser’s field ofexpertise), will extend not only to value, but to matters which may affect value, and can also be acontinuing duty.

In 1991, a development company in which theClaimant was involved sold part of some land itowned, using the remainder as security for a loan fromBarclays, who took an unlimited personal guaranteefrom the Claimant’s husband, and a charge over theirhome. In 1992, the company failed, and Barclaysappointed Kirkby and Diamond Chartered Surveyors(Part 20 Defendants in this action), who had specificexpertise in planning and development, as LPAreceivers of the mortgaged land. Barclays also had MrFrancis declared bankrupt, and sought possession ofthe house.

In 1995, with Barclays’ consent, Kirkby andDiamond sold the land to a development company for£50,000, with the provision for a further ‘claw-back’payment if – within the next 10 years – the land wasdeveloped for, or sold with planning permission fordevelopment of, anything other than a nursing home.

In those circumstances, Barclayswould benefit from 50% of anyprofit.

Only a year later, in 1996, thedeveloper approached MrDiamond (Kirkby and Diamond nolonger being appointed as officialreceivers) with a proposal to varythe claw-back arrangementsuggesting an immediate paymentto Barclays of £25,000, and a capon any future payment of£75,000. Kirkby and Diamondadvised the Bank that a residentialdevelopment of the site within theremaining 9 years of the claw-back was “highly unlikely”. TheBank thus instructed the surveyorsto commence negotiations, and adeal was concluded for an initialpayment of £35,000, and a capon any future payment of£80,000.

However, unknown to MrDiamond, the developer had beenlobbying the local planningauthority to alter the local plan sothat the land in question would beincluded within an area earmarked

Willis The FINEX Surveyors’ Newsletter Q1 2007 3

on in the City of London, due for completion late 2007

Willis Awards : :Willis Named “European Commercial BrSecond Consecutive Year

Willis was named the “2006 European Commercial BrokYear” for the second consecutive year. Presented as part of theannual European Risk Management Awards conducted byStrategicRISK, the award is determined by the vote of over 4,000 riskand/or insurance managers or directors of multinational companiesacross 13 European countries.

Joe Plumeri, Willis Chairman and Chief Executive Officer,“What makes this honour even greater is that it wus by the client community – who better to gauge the performanceof the broking industry? Our total dedication to our clients throughour Client Advocate model is clearly differentiating competitive market.”

for residential development. Shortly afterwards, thedeveloper succeeded with its desire, conditional upon aSection 106 agreement to build a new village andpavilion to serve a local recreation ground. Thedeveloper duly sold on the site – with the benefit ofplanning permission – for £2.2m, Barclays receiving amere £80,000.

The Court had to decide whether Mr Diamond hadbeen negligent in advising Barclays to agree to avariation in the claw-back. Mr Diamond argued thatonce he received the proposal from the developer, hehad checked with the planning department who hadconfirmed that no recent changes had been made tothe local plan. However, it emerged that he hadneglected to ask whether there were any possiblefuture changes to the local plan. Had he done so, theCourt held that he would have discovered there was astrong possibility that the land in question would beincluded in an area appropriate for residentialdevelopment. Accordingly, Barclays would not haveagreed to vary the claw-back.

Although Mr Diamond argued that had Barclaysnot agreed to vary the claw-back, the developer wouldsimply have waited for the remaining circa 8 years ofthe claw-back, the Court rejected this on the basis thatthe chances of a development happening within thecurrency of the claw-back were two to one. Damageswere assessed against Mr Diamond at two thirds ofthe difference between the £80,000 Barclays received,

Willis The FINEX Surveyors’ Newsletter Q1 2007 4

and the amount they would have received.This case demonstrates that a lender’s duty to a

borrower extends to beyond simply advising how mucha repossessed property is worth, albeit that in thiscase, the claw-back was intrinsic to the value of therepossessed property. Also of note is that once thattransaction had been concluded, and the land hadbeen acquired by the developer from the LPA receivers,there was a continuing duty – having regard to theclaw-back agreement – on the lender (and therefore in turn on Mr Diamond, particularly having regard tohis purported planning expertise) to ensure that thebest possible market price was realised for therepossessed land.

...[in this case] there was acontinuing duty on thelender [and therefore theiradvisers] to ensure that thebest possible market pricewas realised for thereposessed land.

Willis Awards : : Willis Awards : : Willis Awards : : Willis Awards:

:W

il li s Awards

::

l Broker” for the

ercial Broker of theed as part of thenducted byvote of over 4,000 risktinational companies

ecutive Officer, said:it was bestowed uponuge the performanceo our clients throughting Willis in this

Willis Named “Best and Most Innovative InsuranceBroker” for the Second Consecutive Year

Willis has retained our prestigious “Broker of the Year 2006” and“Most Innovative Insurance Broker of the Year 2006” accolades forthe second year in a row in the annual reader poll conducted byReactions magazine – a leading financial magazine for the globalinsurance market.

Each year, Reactions conducts an extensive poll of its readers tofind out who they think are the best firms, deals and individuals inthe global reinsurance market. Reactions readership comprises keydecision-makers in the global insurance industry as well as riskmanagers and chief financial officers of FTSE 500 and Fortune 500corporations.

Willis named “National Broker of the Year” 2006 forthe second consecutive year

Willis Limited was named “National Broker of the Year” at theInsurance Times Awards. The annual awards attract great interestwith submissions from over 180 leading brokers and insurers fromacross the UK. These entries are judged by a panel of leadingindustry experts who select the winners after a rigorous judgingprocess and an in-depth consultation. Entrants are judged on thedepth and quality of their management experience, commitment tostaff training, research and development and broking expertise andservices such as risk management. Willis’ winning entry detailed theGroup’s unique Client Advocacy approach whereby clients have localaccess to all Willis’ vast global resources through a single contact,the Client AdvocateSM. It also emphasised Willis’ One Flag mottowhich entails all of the offices across the world working togethertowards a common goal of service excellence.

Service

Our clients’ interests come first. The FINEX teambelieve superior service and ease of doing business arethe cornerstones of every client relationship. As such,each account is assigned a dedicated FINEX contact orClient Advocate.

Our role is to match the resources of the market tothe requirements of our clients. When you need ouradvice or financial, executive or professional insuranceyou can trust us to broker an excellent deal for yourbusiness. Our team has a culture which is centredaround:

l Teamwork – We operate as one organisation,which is reflected in our motto, “One flag” andallows seamless access to internal resource.

l Commitment/Results – We are driven by results,and seek to provide the results that our clientsneed and demand.

l Innovation – Willis is committed to innovation.We commit substantial resources each year

to the research and development of newproducts and solutions.

l Confidentiality –We recognise the importance

of keeping clients’ businessconfidential and our

team is experienced insafeguarding

clients’information.

l Removing insurance jargon– We endeavour to avoid the use of

insurance jargon in our dealings with clients. Animportant example of this can be seen in ourprocedures where clear terms and conditions mustbe provided to all our clients before binding cover,thus avoiding doubt regarding policy coverage andexplain the coverage provided to help ensure thereare no surprises in the event of a claim.

l Global Resources, Local Delivery – FINEXclients range from multi-nationals (including 30%of Global 500 companies) to small-to-mediumsized enterprises. We have over 15,000professionals working in over 100 countries, givingour clients access to a major global network ofresources while receiving a customised servicefrom a dedicated local team.

What Makes Us Different?

Willis is purely an insurance broker. As we are notdistracted by involvement in other areas, we canchannel all our energies into becoming the world’sfinest insurance broker for our clients.

This single-minded approach is matched by aculture that encourages teamwork and a commitmentto excellence. Wherever our clients are, and whateverthey do, we offer outstanding skill to meet theirrequirements.

Financial Security of Insurers

The monitoring of market security is an essential partof our service. Willis was one of the first brokers toestablish a Market Security team dedicated tocontinually monitoring the financial position of allinsurers. The team consists of over 30 professionalswho maintain this service for the benefit of our clients.Our assessment of carriers takes into consideration awide range of quantitative and qualitative information,to achieve an in-depth understanding of the factorsand influences affecting different Markets around theworld.

The strength of our Market Security function is avital tool through which we help clients select the mostappropriate carrier to suit their particular needs.

For further information, or to download a proposalform, log on to www.willis.com/surveyors

Willis traces itsroots back to1828 whenHenry Willis setup a business inLondon toprovide insuranceservices to theMarine sector.Since then, thecompany hasgrownsuccessfully intoone of theworld’s leadingrisk managementand insuranceintermediaries.

About Willis

5 Willis The FINEX Surveyors’ Newsletter Q1 2007

Meet the Team

FIN/5054/01/07

Willis Limited, Registered number: 181116 England and Wales.Registered address: Ten Trinity Square, London EC3P 3AX.

A Lloyd's Broker. Authorised and regulated by the Financial Services Authority.

6 Willis The FINEX Surveyors’ Newsletter Q1 2007

For further information please contact:

Terry SeagerExecutive Director+44 (0)1473 223027seagertj@willis.com

Howard PhillipsAccount Executive+44 (0)1473 223273phillipsh@willis.com

Karen WandAccount Executive+44 (0)1473 223103wandk@willis.com

Willis LimitedFINEX Surveyors DivisionFriars StreetIpswich, SuffolkIP1 1TA

Willis is one of the world’s leading risk management and insuranceintermediaries. We have over 15,000 professionals in more than 300 officesaround the world.

Terry Seager Terry has worked in the Insurance industry for 25 years. He has held a senior underwriting positionwithin a large UK insurer and now heads up one of the placing teams within the Financial Executive andProfessional Risks Division of Willis – FINEX. For thelast 13 years he has specialised in ProfessionalIndemnity Insurance and managed a scheme forsurveyors and related trades.

Tel: +44 (0)1473 223027Email: seagertj@willis.com

Howard Phillips Howard Phillips began a career in insurance at AXA in 1984, and joined Willis in 1999 placingSurveyors Professional Indemnity Insurance under the VEAGIS scheme. He has been involved in theinsurance industry for 23 years both as an underwriter and broker, and has been a member of the Associated Chartered Insurance Institute since 1990.

Tel: +44 (0)1473 223273Email: phillipsh@willis.com

FINEX, the Financial,

Executive and Professional

Risks division of Willis,

produces regular

publications reporting on

the relevant issues affecting

the insurance industry and

our clients. For more

information go to

www.willis.com/publications