PROFESSIONAL NEGLIGENCE: An Introduction

Professional Negligence Overview 

As history demonstrates, a recession always brings with it both challenges and opportunities. In litigation, and professional negligence in particular, the industry is always rather more insulated from the economic turbulence than other more transactional sectors which rely heavily on freely flowing capital and buoyant markets. In difficult times, claimants tend to take the view that they can’t afford not to litigate and a professional indemnity insurance policy provides a recession-proof defendant with deep pockets.

Falling markets, from stock markets to property markets, always serve to churn up claims against professionals of all disciplines. This global economic crisis is no different and we fully expect to see substantial growth in the professional negligence sector over the coming years.

In the property sector, as profit margins are squeezed due to increasing labour and material costs, there is little tolerance of any shortcomings on the part of related professionals such as surveyors, geotechnical engineers, architects and property solicitors that might serve to erode remaining profit further. Rapidly rising interest rates, currently predicted to reach as high as 6% over the coming year, will add yet further pressure to those in the property sector and will likely lead to a fall in property values (both commercial and residential) with claims against overly optimist surveyors and valuers expected to boom once more, as we saw after the 2008 crash.

Rising interest rates will impact many businesses more broadly as the cost of borrowing and finance increases beyond what was ever reasonably expected. Add to that the soaring cost of doing business generally and this will necessarily cause exponential growth of companies in distress. This will inevitably lead to a higher demand for litigation, as those businesses try to claw back some of their lost ground.

In the financial sector, uncertainty in the markets always causes investors to take a closer and more critical look at the suitability of their investment recommendations, with bad advice having been previously camouflaged by rising values. As the markets recede, pensions and life savings are at risk of loss. Again, as we saw after 2008, there is expected to be a rise in claims against financial advisers.

Claims arising from Defined Benefit Pension Scheme transfers have been in the headlines, in particular the British Steel workers. FS Legal is instructed on a particularly high-profile case in this sector in a £7M claim brought by the Financial Conduct Authority (FCA) itself. Pension liberation ushered in its own problems, with many falling victim to scams. Again, as the markets fall and the ‘liberated’ pension fund values start to drop, the advisers who recommended transfers come under close scrutiny.

Claims against banks arising from a failure to properly protect their customers against sophisticated scams, and fraudsters have also seen exponential growth over the last year and this is expected to continue to grow. Banks would be well advised to invest in every means at their disposal to safeguard their customers’ funds and in particular online security.

Tax advisers and accountants have already faced a barrage of negligence claims in recent years, which shows no sign of abatement. Indeed, they now also face a significant growth in claims arising from failure to adequately disclose commissions received from third party scheme promoters, which provides a neat work-around for claimants where the more traditional professional negligence claims may be time-barred. Such claims also carry the added threat of reaching beyond the corporate entity to the advisor’s own personal assets.

Solicitors are sadly no exception to the rise in professional negligence claims. As a specialist practitioner in this sector, FS Legal has seen recent increase in claims against solicitors who have failed to fully appreciate the nature and complexity of the case before them. As a result, some or all of the potential claims have been lost to limitation and/or the claims have been mis-pleaded. Loss of Chance claims certainly appear to be on the rise. It is notable that this particular uptick follows the remote working practices of the COVID pandemic, where supervision and support from more experienced colleagues may be less freely available. This trend has not escaped insurers, who now factor such working practices into their PII renewal quotes.

As always, talented solicitors are at the heart of any successful professional negligence practice. Whilst there may be an abundance of work, meeting the demand may prove challenging for firms looking to expand as the recruitment market has significantly tightened. Recruiters report that general uncertainty and recessionary fears are causing would-be candidates to ‘hunker down’. This is not limited to the legal sector. Every industry from accountancy, to financial advisers, to insolvency practitioners have all reported difficulties in the hiring market.

Record salary increases driven by the London market, and fast expanding in the regions, along with more flexible working approaches, have tempted some to move. A desire for quality work remains high on the agenda for all candidates. Professional negligence teams would be well advised to increase their numbers to meet the forecast demand.

With any ‘boom’ in litigation, so too is there a growth in mediation. We predict a busy year for mediators. At FS Legal, we have certainly seen a recent and increasing willingness to engage in early, and often pre-issue ADR, usually taking the form of a formal mediation. This was typically unheard of in previous years, with insurers taking the policy approach that all pre-issue claims would be flatly denied, a policy that was understood to see off a good 30% or more of all intimated claims.

Whilst seemingly a positive step, our experience has been that this initial enthusiasm to explore ADR is premature. The parties are simply not prepared, perhaps psychologically, to settle at that early stage and the ADR is typically unsuccessful. This then causes the ensuing litigation to ultimately rumble on far longer than it might otherwise have done with the parties seemingly feeling like the usual ‘exit route’ has been tried and failed. Whilst that has clear advantages for solicitors practising in the sector, it will quite likely prove to be a source of frustration for financially embattled and litigation-weary clients.

It is to be hoped that the current period of economic dislocation calms over the coming months and returns a sense of stability to the country, but in the meantime, litigators should expect their desks to be full.

FS LEGAL