Changes in role of advisers and difficulties in property and financial markets 'to drive PI claims' - Professional Indemnity for solicitors

29/1/2009

The number of Professional Indemnity (PI) insurance claims could be set to escalate as the problems being felt in the property market continue to result in legal disputes.

With the financial crisis resulting in firms losing money on property deals, advisers - and the law firms representing them - are discovering they are increasingly having professional negligence cases from disgruntled clients filed against them, an article in The Lawyer reports.

And although claims made during the previous recession tended to be mostly driven by cases of mortgage fraud, Richard Portlock, a partner at commercial and private client law firm Blake Lapthorn, suggests that the current downturn will be more complicated in terms of placing blame on the advice given which has had a negative effect on a company. He added that during the time of the recession in the 1990s, legal developments were driven largely by the property market's decline.

"Life has moved on in the last 15 years and the way clients use professional advisers has changed. Sophisticated organisations use professionals on a broader consultancy basis - therefore there'll be a lot of fights about who's at fault," Mr Portlock points out.

However, one case of a claim being filed in relation to property transactions during the current economic climate is that of Nationwide Building Society. The publication points out that the financial services provider has filed claims against both Browne Jacobson and Eversheds in relation to significant mortgage fraud in the residential property market.

In particular, the buy-to-let part of the sector could be hit with PI claims, after Richard Harrison, partner at Barlow Lyde & Gilbert (BLG), pointed out that there is "masses of mortgage fraud" taking place, especially within this sub-division. This led him to consequently claim that landlords could be in particular trouble.

Such concerns appear to have some grounding after Sarah Clover, who is also a partner at BLG, looks towards anecdotal evidence that a high number of property agents are looking at their contracts in great detail. And should they discover that their investment has not worked out to their liking, "they are looking to blame the lawyers", she asserts. But the residential property sector is not alone in facing a potential rise in PI cases, as Ms Clover reports commercial property-related claims - which are of a high value - are beginning to rise.

However, Ms Clover reports it is not just dealings in relation to property that will see an increasing number of claims being filed as the credit crunch rumbles on, with the wider financial market set to experience difficulties. This - in part - is due to the "hideously complex" contractual agreements that are often in place between banks and their advisers.

As an example, The Lawyer article points towards a group litigation order being faced by solicitor Collyer Bristow which has been filed by over 550 of those who have invested money into schemes by John Bailey, company commercial chief at the firm. Seeking to recover some £50 million in damages, the claim has been filed through a combination of third-party litigation funding and after-the-event insurance.

"It will take time for the wheels to really fall off the financial services sector, but more of these claims will come for sure," Mr Harrison states, adding that professional negligence cases within the energy, marine and commodities industries are also on the rise as oil prices remain in a state of flux.

The BLG partner suggests that those who are witnessing their profit margins decline after entering an agreement to ship goods across the world are now taking a look at their contracts to consider how they can successfully get out of them, as "there are massive companies collapsing out there".

However, this is not the first time that the issue of PI claims being filed due to the credit crunch has been flagged up. In a recent Insurance Times article, it was stated banks are now attempting to recoup the losses made on the back of advice given to them by solicitors, surveyors and consultants, as investment portfolio values wane and more homeowners struggle to keep up with mortgage payment commitments.

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PYV are one of the UK's leading providers of professional indemnity insurance. This news article has been produced by Adfero in collaboration with PYV and its unauthorised use is not permitted.

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