However knowledgeable you are, however skilled your team, human error can lead to a negligence claim being made against you and your company. The cost of defending claims can be super high, while any compensation due to your client if you are found to have provided – intentionally or unintentionally– inadequate advice or services, could break the bank. There are no superheroes, so you need a Professional Indemnity insurance (PI) policy to avoid disaster.

“Professional Indemnity insurance covers companies and individuals for mistakes made as part of people’s day-to-day roles,” said Derek McCormick, Head of Underwriting at Barbon Insurance Group, which includes HomeLet.

From the loss of documents or data, infringement of copyright and defamation to the dishonesty of your employees or the unintentional breach of confidentiality or duty of care, there are so many mistakes that an estate agency could potentially be accused of making, even if the allegations are false.

Derek added, “Mistakes can and do happen – so it’s in the best interest of a company to have a PI insurance policy in place in the event that an error is made that results in a negligence claim from a customer. Otherwise the company will have to bear the full cost of a claim – and subsequent damages – which could have a big impact on a business.”

When London based John D Wood sold a three-floor mews cottage in west London, on behalf of the Queen’s godson, for £1.5 million a decade ago, they would not have predicted a High Court claim being made against them just a few months later, that they had sold the property for £300,000 less than it was worth.

Michael-John Knatchbull, a film producer and grandson of the Earl Mountbatten of Burma, accused the estate agent of “screwing up” when a few days after the contracts on the cottage were exchanged he read that his neighbours at No 4 Horbury Mews in Notting Hill had sold their property for £1.8 million.

He told the court that he felt “upset” because he had accepted the offer of £1.5 million on the advice of the agent that this was the property’s correct value, when in fact the agent “had not passed on the information about the other house”.

This case highlights just how vulnerable estate agents can be and why they should ensure that they are protected at all times, by taking out PI insurance, in order to avoid suffering potential financial losses caused by
even the smallest error, oversight or omission.

“Without a PI policy the company will have to bear the full cost of a claim and subsequent damages – with a big impact on the business.” Derek McCormick Barbon Insurance

“PI insurance is essential,” said estate agent Matthew Kaye of Kaye & Carey. “We are becoming a much more litigious society and you only have to look at the experience that John D Wood had to realise how important it is to have insurance.”

Most professional industry bodies, such as the National Association of Estate Agents (NAEA) and Association of Residential Letting Agents (ARLA), insist that their members have PI protection, highlighting just how important it is to have insurance cover.

“We are required to have professional indemnity insurance by the NAEA and ARLA,” said James Wyatt, partner of Barton Wyatt. “It is utterly vital in any business. I am surprised that people using us don’t ask that we are insured – I’ve never been asked.”

Some property professionals will be pleased to learn that PI insurance policy can be tailored to reflect the needs of estate agents, including cover for claims made to The Property Ombudsman (TPO), or arbitration through the National Approved Letting Scheme (NALS).

Lee Hudson, PI Underwriting Manager, Hiscox UK & Ireland, commented, “Tailored policies are available from specialist professional indemnity providers. Some insurers may offer to provide miscellaneous cover which will cover negligence, but little else. A specialist insurer will know that most complaints made against your profession will first be pursued through the Ombudsman, so a tailored policy will specifically cover awards made by an Ombudsman, including the legal costs involved, whereas a miscellaneous policy is unlikely to.”

Given its importance, it is somewhat surprising that PI insurance cover, which starts from around £100 per year, is not a legal requirement. But those agents that dare to ignore it do so at their own peril.

Hudson continued, “The risk is high for any estate or letting agent and property manager who makes the decision not to purchase PI cover. We have in the past seen businesses forced to close as a result of their reputation and customers being lost, and assets having to be sold off to pay legal bills and compensation to claimants.”

“A [PI] policy gives you immediate access to specialist legal representation meaning you can get on with the important job of running your business and helps protect your balance sheet if your business is found to be negligent,” he added.

If you do not have PI insurance yet or feel unsure about the suitability of your cover, it could be a wise move to find the right policy, right now, otherwise you could be left thinking, “if only.”

Contacts:
Barbon Insurance Group www.barbon.com
Hiscox www.hiscox.co.uk
Towergate www.towergate.com
l Kaye & Carey www.kayeandcarey.co.uk