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FAQs on liability caps for surveyors professional indemnity

Make sure you know exactly what liability caps are and how they could affect your business in the case of a professional indemnity claim. Here's everything you need to know about liability caps for surveyors:

What are they?

Liability caps are contractual agreements that mean a client can only claim damages up to the amount agreed, even if the law would otherwise award a greater sum in damages.

RICS themselves strongly recommend the use of caps wherever possible as a way in which to manage the risk in valuation work, and to ensure that there is a fair allocation of risk and reward between members and their clients.

Written by Kate Slater on 6th October 2014

FAQs on liability caps for surveyors professional indemnity

Make sure you know exactly what liability caps are and how they could affect your business in the case of a professional indemnity claim. Here's everything you need to know about liability caps for surveyors:

What are they?

Liability caps are contractual agreements that mean a client can only claim damages up to the amount agreed, even if the law would otherwise award a greater sum in damages.

RICS themselves strongly recommend the use of caps wherever possible as a way in which to manage the risk in valuation work, and to ensure that there is a fair allocation of risk and reward between members and their clients.

Are they required by law?

No, but any caps are legally enforceable if they have 'reasonably' been written into a contract. It is also deemed within the industry as a way to regulate risk in a professional/client relationship.

What's the difference between a liability cap and a PI limit?

The insurance limit is set out in your firm's insurance policy and is fixed on your annual PII renewal; it is the maximum amount which your insurers will pay in any particular claim.

A liability cap is an altogether separate agreement between you and your client, fixed when you enter into a commercial engagement.

The two are not really related, and there is no legal regulatory reason why a liability cap needs to be as high as your insurance policy limit, or often, anywhere near it. It would be unwise to agree a cap greater than your policy limit, but it would still be better from a risk perspective than not agreeing one at all.

What should I set my liability cap at?

The aim should be for a liability cap to be set at a level which is proportionate to the risks and rewards for both parties involved in the instruction. There are a number of factors which members should take into account when considering the level of a proposed liability cap.

These include the purpose of the instruction, characteristics of the property valued and the parties who rely upon the valuation.

Where should the cap be included in documentation?

As well as the engagement letter, the cap should be included in the standard terms and conditions in a prominent position. It may improve your position further if you refer to the existence of the cap in the body of the valuation report too.

If a single engagement letter covers several valuations, or a single valuation of several properties in a portfolio, you should make clear in the engagement letter whether the specific figure specified for the liability cap applies to each valuation or the whole engagement.

Can caps be used at all times?

No. There are some circumstances in which the used of a cap is limited or prevented by law. For example, valuation reports prepared for inclusion within prospectuses under the FSA Listing Rules may not exclude liability to parties other than the client. Specialist legal advice may be required in such situations.

What should my liability cap wording look like?

"The Royal Institution of Chartered Surveyors recommends the use of liability caps to members as a way in which to manage the risk in valuation work. Our aggregate liability arising out of, or in connection with this valuation, whether arising from negligence, breach of contract, or any other cause whatsoever, shall in no event exceed £(x). This clause shall not exclude or limit our liability for actual fraud, and shall not limit our liability for death or personal injury caused by our negligence."

Guide to Professional Indemnity

For more information on professional indemnity and surveyors PI, download our free guide.

Guide to Professional Indemnity

For more information on professional indemnity and surveyors PI, download our free guide.

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