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Architects PI Insurance – Collateral Warranties

What are collateral Warranties?

Collateral Warranties or Duty of Care agreements are contractual agreements between parties who otherwise might not be in a contractual arrangement.

The Reason for Collateral Warranties.

The collateral warranty boom began in the late 1980’s following the House of Lords decision in D & F Estates v Church Commissioners in 1988. During the previous 15 years the courts had shown an increasing readiness to award damages against negligent contractors and consultants without the claimant having to demonstrate that he had any contractual rights. After the decision in D & F Estates it was clear that owners and occupiers of buildings needed a contractual remedy in order to pursue claims for certain types of losses and this was provided by collateral warranties.

Forms of Collateral Warranty

Standard forms published by the British Property Federation (BPF) are designed to limit the warrantor’s obligations. These forms are generally approved by professional bodies and insurers.

Who will require collateral warranties?

In the case of an architect it is unlikely that he will have a contractual relationship with the purchaser of the building or the eventual tenant. The building may also be funded by a bank or some other financial institution and again the Architect is unlikely to have a contractual relationship. A Collateral Warranty creates a contractual relationship between the Architect and these parties which reflects the responsibilities that the Architect had to his client.

Assignment

These agreements can also be assigned meaning that their benefits can be passed on from one funder, owner or tenant to the next. Very often they only stop when the limitation period expires and this is likely to be 12 years after the date of practical completion. So now the Architect can be pursued by parties other than his client.

What is the Stance of PI Insurers towards Collateral Warranties

As a rule the P I Insurance Market will normally accept claims arising from sensibly worded agreements. The British Property Federation has agreed standard templates with most construction related professional bodies (RIBA, ACE, RICS included), which most insurers will accept.

Most PI policies address the issue of collateral warranties by clearly setting out the limits beyond which cover will not apply. This should avoid the need to submit each and every agreement for sanction by the insurer. Some Insurers will also offer a free collateral Warranty checking service as part of the policy.

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