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Paper eres2001_263:
Design liability and Design insurance: An International Perspective

id eres2001_263
authors Reyers, John
year 2001
title Design liability and Design insurance: An International Perspective
source 8th European Real Estate Society Conference (26-29 June 2001) Alicante, Spain
summary Design liability relates generally to risks and negligent actions in design. Design liability in the UK arises either contractually between the parties or under the tort of negligence. Further contractual relations may be created with those who are not party to a principal contract by entering into collateral warranties. The belief that there are only two distinct levels of liability i.e. reasonable skill and care and fitness for purpose has been challenged. It is claimed that a ‘spectrum of liability’ exists (Gaafar and Perry 1999). Designers’ liability may be to exercise reasonable skill and care in traditional construction contractual arrangements, however, this may be extended to include a guarantee that the design will be fit for its purpose, particularly where the contractor undertakes design (Donohoe 1999). Design professionals in the UK principally adopt Professional Indemnity Insurance (PII) as their primary method of risk transfer. PII ‘…provides cover in respect to any loss from a claim made against a designer in respect of any negligent act, or omission.’ Cornes 1994 p215. This is done by the payment of premiums, which are calculated to reflect an individual or organisation’s past performance and exposure to risk. The premiums create a fund, which will indemnify the insured for claims made related to the insured risks. The cover may be subject to a ‘deductible’ amount, which is met by the designer in the event of a claim and financial limitations to the level of indemnity provided by the insurance company. It is a requirement of some professional institutions that their members are insured against breach of professional duty. Professionals approach design within statutory and advisory limits, procedures and guides that may reduce exposure to risk (Building Act 1984, Building Regulations 1985, Construction (Design and Management) Regulations) but at the same time set a standard or statutory duty. A number of risk avoidance or transfer techniques can be used and each will be suited to particular kinds of risk or exposure. For example, collateral warranties can create stronger links to share risk between parties; avoidance of risk-laden activities such as supervision of the construction process or specialisation in particular design services reduces designer risk exposure. Further examples include ‘deductible’ payments made on any insurance claim and financial limitations to the level of indemnity provided by the insurance company. In the UK the construction industry is seeking a more collaborative approach to design and production. The sharing of risk is an essential precept and concept for such initiatives as design and build, prime contracting, Private Public Partnership and Public Finance Initiative. Hence opportunities exist for consolidating the risk across design production teams. Inherent Defects Insurance or Building Users’ Insurance against Latent Defects (BUILD) have been in limited use in the UK (Insurance Institute of London 1992). The research will discuss the problems encountered for designers regarding these policies, which do not relieve them of the necessity to maintain professional indemnity cover. New insurance products are available for joint ventures and design and build teams (Port-Hull 1997). The culture in other countries in terms of design liability is rather different. This affects not only the product of the design process but the process itself including relationships and attitudes of the design team involved. The acceptance of insurance against a project or product rather than the designer in France, known as decennial insurance, has led to different approaches to the design process and a different attitude towards design liability from both designers and their clients (Atkins Planning 1985). In the French system latent defects insurance and material damage first party risk cover, which permits immediate remediation for serious defects without awaiting the determination of liability, indemnify building owners. The continued existence, even for a set amount of time, of an insurance policy regardless of the continued existence or solvency of the designers brings with it a greater certainty for clients or customers. This may also simplify the legal and claims processes. A control bureaux report on structural, health and safety and fire considerations and inherent defects insurance will only commence after their certification of a building, thus integrating many building control functions (Insurance Institute of London 1992). It is more common in the USA for designers’ activities to be informed by advice from insurance companies or brokers (Redeker 1995). In the USA theories of public choice and economic regulation affect the law of tort therefore legal results and legal changes are ultimately determined by group behaviour. Interested parties allocate resources and so the power balance between the groups, within a free-market, affects liability law (Gedde and Brahmasrene 1999). This holds interesting implications for international practice, as this is not fully reflected in the less litigious cultures of Europe. Design teams, though based within one legal framework and insurance system, will operate internationally both in terms of customers and the production and realisation of their designs. This offers both complexities and opportunities for managing liability. This could be illustrated by Miller (James) and Partners v Whitworth Street Estates (1970) where it was held that the law of one country applied to the interpretation of the contract and the law of another country applied to the procedure to be adopted in arbitration. Of prime importance to designers is the understanding of the reality of risk in terms of probability and severity for each operation they are involved with. When operating internationally designers must be aware of the context in which they operate in terms of legal framework and insurance culture. This paper examines the area of design liability within the UK, U.S. and France. Perceptions of risk and liability regarding design have been collected from PII insurers and professionals engaged in design functions within the UK, the US and France. Design professionals that operate internationally as well as design professionals within the study countries have been interviewed to ascertain their perceptions of the risk and liability associated with their practice. The benefits of each system are evaluated and compared and extensive commentary given on the progression of systems in the context of claims made and application within each culture and legal framework. Analysis is given on the future of design liability and appropriate insurance or other means of risk management in the context of increasing globalisation and possible harmonisation.
series ERES:conference
discussion No discussions. Post discussion ...
session Real Estate Performance
last changed 2009/07/10 18:07
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