Promises, Promises: Client Contracts and PI Pitfalls

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Promises, Promises Client Contracts and PI Pitfalls

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Promises, Promises | Client Contracts and PI Pitfalls

Promises, Promises Client Contracts and PI Pitfalls Your insurance policy may not cover you for the work that you do. Simon Baker explains one issue that can arise.

If you provide services, the following routine will be a familiar one. You will have a number of key clients with whom you sign contracts. Sometimes those contracts will be based on the client’s standard terms, which you’ll be invited to read (we trust you do this) and, if you wish, to pass to your lawyer (ditto) before the document is signed.

There is often a clause in the contract concerning your level of performance: it’s the one that says you will use reasonable skill and care, or perhaps your best endeavours at all times in the provision of the services, or that you will provide a standard of service equivalent to that of a highly competent professional business providing similar services.

And often this statement rings no alarm bells at all, because we all like to work hard and aim high, etc. Therefore, guaranteeing to do so in a legally binding setting merely seems like a statement of fact.

Simon Baker Partner | Commercial simon.baker@laytons.com +44 (0)20 7842 8000

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Promises, Promises | Client Contracts and PI Pitfalls

Back-up insurance

What should you do?

You will also, very possibly, have a Professional Indemnity (PI)

There are two possible solutions, and they are not mutually

insurance policy. This will cover you, broadly speaking, if you

exclusive. First, you could ask your insurance broker to look at

make a mistake; depending on the services you provide, this

your policy wording and see if it can be softened. Meet your

could range from giving negligent advice to committing libel

broker and explain what you do. If you have the appetite,

or breaching a third party’s intellectual property. It is sensible

go through your current policy and highlight the exclusions

to have PI insurance, because often your contractual exposure

that cause a problem for you, and ask whether they can be

could exceed the fees you receive – sometimes many times

removed.

over.

More practically, the safest thing is not to offer standards of

The unexpected happens

care that exceed the default ones under law. You might be worried that this does not seem client-friendly, but in reality the best contractual negotiation involves explaining rather

You may, of course, never make a claim under your PI policy.

than simply deleting. If you can add a note next to your

However, mistakes do happen, and so it’s not impossible that

deletion explaining that the clause has been softened so that

something could go wrong at one point in the life of your

you don’t end up doing uninsured work, and not in order to

business, and that you will have to rely on your policy.

dictate the manner in which you approach the job, your client may well listen and accept this.

The problem, as so often in life, can lie amid the small print.

Specifically, many PI policies contain a number of exclusions

Ultimately, you should at least have a grasp of your

(namely, things not covered) such as: we will not cover any liability

contractual exposure and of the underlying stability of your

arising, directly or indirectly, from any breach or alleged breach of any

insurance.

contractual duty (or similar duty) owed by the Insured that is more onerous than the duty that would otherwise be implied under statute or at common law’.

That may look fairly cryptic, but in plain English it means something like this: 1. At law you must provide a standard of reasonable skill and care.

2. If you offer anything greater, that’s your problem. We won’t cover it.

Difficulties arise, therefore, when you find that somewhere between the wording of the policy and the wording of the contract, your insurance has fallen away. Put simply, you’ve promised too much.

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