Damaging Reputations and Relationships

A long-running case between the Museum of Liverpool and AEW Architects has ended with the award of more than two million pounds in damages against the Manchester-based practice. Further court orders in relation to the payment of costs are expected to be made later this year. The firm has been ordered to pay compensation to the museum after it was blamed for a series of design problems with steps, a seating area and ceilings, one of which collapsed. AEW had in turn sued contractor PIHL and Galliford Try (acting as a JV) and they have been ordered to pay a contribution of £205,080 towards the bill.

It is not for me to comment on the rights and wrongs of Mr Justice Akenhead's deliberations and subsequent judgement in this case. What I am surprised about is why this dispute was not settled in a mediation? Maybe a mediation did take place and no common ground could be found? Maybe AEW’s insurers wouldn’t play ball? We will never know because, as we all know, mediation takes place in private and is “off the record”.


What I can say, with some confidence, is that none of the parties will be overjoyed about reading about this sorry story in the press. Reputational damage is often difficult to put a value on but needs to be considered when claims start flying around and insurers become involved.


The requirement to notify insurers of a potential or actual claim will be an express term of the contract of insurance as will be the passing of the care and conduct of the claim to lawyers of your insurer’s choice. If you don't comply, cover will be void. You simply do not get to debate these matters. The appointed lawyers will be acting for both you and your insurers, but it is your insurer that will be paying the bills and there can be an unspoken tension between an insured party and its insurer in such situations because you may want different things.


In practice any party on the receiving end of a claim may be only too happy to let someone else deal with the claim, at least at the outset. The problems can come later when a legal strategy and tactics are being developed without any consideration of past, or future, client relationships which might have existed and might be preserved according to how the claim is managed.


There is no real definitive solution to this conundrum. In reality your insurer will be looking to successfully defend the claim in its entirety, or settle at minimum cost, whilst you may well be hoping that the matter can be settled quickly without destroying a client relationship. In these situations the interests of the insurer and the insured may well be considerably different. Balancing these opposing interests can be difficult but perhaps not impossible.


Here are some suggested guidelines for dealing with professional negligence claims made against you whilst attempting to preserve the client relationship.


• Read and fully understand the terms of your policy wording. What are you required to do and when?


• What are you not allowed to do?


• Clear any communications with your client through your insurers before they are sent.


• Liaise with your broker and share any concerns you have that your insurers may not be thinking about your long term interests.


• If you believe that your client relationship might survive after the claim has been dealt with, ensure that your insurers are aware of this from the outset.


• Engage with your insurers and appointed legal team and be a part of developing the strategy for dealing with the claim from the outset. Do not be passive.


• Insist that you see any documents being sent to your client and request amendments if you feel that your client may be antagonised.


• Encourage your insurer and its legal team to propose mediation at the earliest opportunity.


• Attend any mediation and make suggestions inside your team to encourage settlement, even if you have to think about making a financial contribution outside the requirement of your insurance arrangements.


• Attempt to place a value on the reputational damage that will be sustained if litigation follows.


• Remember your insurers will not attach any financial value to your future client relationship or reputational damage if matters are not resolved.

 

Whilst it may be tempting to allow your insurers to take over the claim and for you to be a passive bystander in the proceedings, such an approach may have unanticipated consequences, including losing clients and suffering unwelcome reputational damage. Not every client is good for you, but the ones that are, are worth fighting for.

 

Peter Vinden is Managing Director of Vinden. He can be contacted by email at pvinden@vinden.co.uk. For similar articles on construction, corporate protection and dispute resolution generally, visit www.vinden.co.uk

Peter Vinden

Peter is an experienced professional in the construction industry with particular expertise in quantity surveying and the commercial management of contracting organisations. 

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