Causation is often a very important legal defence to a liability claim against a professional. In order to successfully claim against a professional for inadequate provision of professional services, the following elements must be established by the claimant:
- The claimant must have suffered a loss;
- The professional must owe the claimant an obligation or duty;
- The obligation or duty must have been breached; and
- The loss must be causally connected to the breach of obligation or duty.
This fourth element of causation can be overlooked. If a professional has made a mistake and their client has suffered a loss, it is often the case that the professional assumes that they must be liable for the claim. In their chagrin and desire to set things right, the professional often jumps straight to rectification or settlement. However, the appropriateness of this may not stand up to closer scrutiny.
Whether a causation defence is possible is very fact specific, but professional indemnity (PI) insurance experience is that it is very common in terms of parts of the claimant’s claim, and sometimes the entirety of the claim. If the outcome would have occurred anyway, the professional’s error has not contributed to the loss – in essence, nothing changed. Similarly, if there are actions by others or intervening events, the chain of causation may be broken. As such, the loss may be caused by something other than the professional’s mistake.
An increasingly common type of clause seen in both appointments and collateral warranties are the following:
- Appointment - The Consultant acknowledges that the Contractor is and will at all times be relying upon the skill and judgement of the Consultant in connection with all matters for which the Consultant is responsible under this Design Agreement.
- Collateral Warranty - The Consultant acknowledges that the Beneficiary shall be deemed to have relied and shall continue to rely upon the warranties and undertakings provided by the Consultant.
These clauses often do not cause the concern they deserve, and are in fact prejudicial to the professional and their PI insurers.
On the one hand, it removes an evidentiary burden from the claimant. This is not simply "legal admin", as a claimant has to prove their claim. However more insidiously, they compromise causation defences which may be available and very relevant to a particular claim. This element of the claim is leapfrogged, as reliance is assumed, and therefore this element of causation does not have to be demonstrated.
An example might be where there was a contractor designed element, and where they in actual fact relied on their own designer, rather than the professional. Another obvious example would be where there are multiple members of the professional team, or a succession of professionals over
time on the project. Yet another example would be a value engineering exercise carried out between contractor and client, and where decisions were made without reference to the professional. Or where decisions are made and the professional had not yet been appointed. The list does not end here, and nor is it confined to design and build contracts.
As a contractual clause prejudicial to the insurer’s position, accepting this clause can compromise PI cover for an affected claim.
As such the clause should be deleted or amended. For instance, the words, “shall be deemed to have relied and shall continue to rely” might be amended to “may rely”.
There is clearly no intrinsic objection to the client or a beneficiary relying on the professional’s services, but such reliance cannot be legally assumed, and fundamentally, a claimant must still prove their claim.