During uncertain times like these, existing risks can be amplified and professionals may face exposure to numerous additional risks. An economic slump can also trigger a spike in claims against those individuals, so what should professionals be mindful of, and what can professional service firms do to minimise the risk of claims arising?
Risk No 1: Threats to Business Continuity
Recent disruptions have tested professional service firms' resilience to change and not all firms have fared equally.
Remote working and operating with skeleton staff can give rise to supervision regimes failing, a lack of access to resources or difficulties engaging in collaborative processes. Practically speaking, it could ultimately lead to incorrect or ill-formed advice being issued.
Many professionals have been called upon to advise on novel situations and in time critical conditions. They may have been inundated with requests for assistance, often in circumstances where there is rapidly changing government guidance. In the early stages of the 'stay at home' measures, this particularly affected professionals in construction, tax, financial services and employment/HR.
Professionals are not held to a 'gold standard' but rather judged against an ordinarily competent member of their profession or, if professing particular expertise, other such experts. Although each claim will always turn on its own facts, a reduced workforce or one struggling to adapt to these challenges is unlikely to be a defence to a claim of breach of duty.
Remedy: Plan ahead and don't leave things to chance. Take care to set out and agree the scope of the work. Changes in timescales for providing advice, personnel and third party influences should be reflected in updated terms of business, including reference to the possible impact of COVID-19/coronavirus if appropriate. Advice should be appropriately caveated to reflect any urgency and the rationale for it recorded.
Risk No 2: Data protection & cyber attacks
It is trite to say that professional service firms hold personal and banking data, so cyber attacks should be at the forefront of their risk management process, even more so now.
Firms are more exposed to fraud and susceptible to data protection breaches whenever business continuity is disrupted. There may be a greater chance of employees using unprotected internet connections and personal devices while working remotely. Businesses with less sophisticated IT infrastructure are particularly vulnerable and are being actively targeted with phishing scams. With focus sometimes diverted elsewhere, issues of compliance and security may fall off the boardroom agenda.
A potential decrease in the traditional methods of supervision could result in compliance procedures being less well adhered to. Even during a pandemic, if it is found that a business lacked sufficient protections in place that would have alerted them to fraud at an earlier stage, they will be unlikely to recover all losses suffered under their insurance and may have a liability under the GDPR.
Remedy: Implementation of risk management and data protection measures is essential, as is appropriately educating employees of their importance. It is prudent for businesses to have adequate insurance cover for cyber liability, business interruption and penalties for data protection breaches. Prompt notification to brokers or insurers is vital.
Risk No 3: The Impact upon the Property market
The economy and property market are inherently linked. Changes in either have a knock-on effect on the many professional service firms operating in the property market.
Recently there was a freeze on aspects of the property market, whereby many mortgage lenders offered payment holidays and the Financial Conduct Authority directed lenders not to pursue repossessions before 31 October 2020. Meanwhile, lending debts continue to accrue. Clearly the revival of repossession actions could coincide with a downturn in the residential property market, resulting in shortfalls for lenders.
The economic dislocation of recent months has caused or accelerated structural change in the commercial property market. Retail and leisure have been dramatically affected and other sectors, such as offices, may be subject to longer term negative impact.
Surveyors and solicitors, in particular, suffered an avalanche of claims as a result of this type of situation following the 2008 crash and a similar pattern may emerge.
Remedy: Adherence to professional standards and contractual terms are key to minimising the risk of claims arising. For instance, surveyors should ensure their valuations adhere to RICS guidance and any contractual retainers from lenders. Solicitors should ensure accurate reporting in accordance with the UK Finance Mortgage Lenders' (formerly CML) Handbook.
Risk No 4: Insurance related disputes
The Financial Conduct Authority's test case on business interruption (BI) policies will have a huge impact on the insurance industry and may lead to increasing premiums across insurance of all types. As the professional indemnity market hardens further, it may become more difficult to obtain professional indemnity and other types of insurance. It is therefore more important than ever for professionals to ensure that: risks have been identified and assessed; risk management processes are fit for purpose; and compliance can be demonstrated to insurers.
Insurance brokers have been facing difficult questions in relation to BI cover. Some clients may believe they received negligent advice and responses to such allegations require careful consideration so as not to prejudice the defence of relevant claims. Notifying insurers of a circumstance which could give rise to a claim should be considered, as a failure or delay in doing so can have a significant bearing on coverage.
Remedy: Identify, assess and manage risks; and maintain appropriate records.
Risk No 5: Health and Safety
The current climate means that professional services firm need to be more alert than ever to their duty to ensure, so far as reasonably practicable, the health, safety and welfare of their employees. They need to carefully consider if employees can re-commence work, and if so, the health and safety considerations to be taken into account. This is perhaps even more important for employers whose staff have generally been office based. with few specific risks beyond trip hazards and scalding kettles.
Bear in mind how UK or devolved government guidance, or other statutory restrictions, could impact on an employee's ability to perform their role. No profession is immune and while construction professionals are perhaps the most vulnerable, office-based workers now operating from home also need to be assessed in their new environments, including those risks directly arising from COVID-19.
Remedy: The route back to work is likely to be different for each business and what is deemed safe will vary. All business activity should be reviewed in terms of health and safety regulations and prompt steps taken to comply.
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