Professional negligence on the rise

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The welcome news that the pandemic at least in the UK is abating is encouraging for all of us but, as we all know, there will be a period of economic re-set as Government support is gradually withdrawn and business gets used to life without the safety net of state-backed furlough and enforcement restrictions.

It is likely that the level of business failures will spike at that point and that recessionary pressures will affect many parts of the economy. Businesses will be looking to stem their losses and one part of that will involve dusting off the advice provided to them by professionals before and during the pandemic to see how effective it has been. This is a natural process and previous recessions, in the 1990’s, the early 2000’s and arising from the financial crash on 2008, all saw a considerable increase in professional negligence claims.

The big difference between the current economic situation and those recessions is that the catalyst has not been the cycle of boom and bust but rather the unique impact of a global pandemic. Whereas previous recessions saw a huge spike in lender claims for losses incurred on property loans and claims for over-bullish investment advice, on this occasion the types of claims arising may be a lot more varied:

  • Claims for inadequate insurance advice. The Supreme Court has recognised (in a case brought by the FCA on behalf of policyholders) the effectiveness of many business interruption insurance clauses in providing cover in particular for losses sustained as a result of Government restrictions imposed to combat the pandemic. Many businesses in the hospitality and entertainment sector which did not have relevant cover may be looking hard at the advice which they received from brokers pre-pandemic and brokers as a result will be looking carefully at their E&O cover.
  • Claims for over-valuation in the face of the economic turbulence of the pandemic and failure by advisers to anticipate the possible extent and impact of the pandemic. Global stock and property markets have remained relatively constant, but economists do predict a re-balancing of markets as the new normal emerges post-pandemic and there will be winners and losers arising from that.
  • Claims against medical and healthcare sectors for not responding quickly enough to the risks and challenges of the pandemic. Whilst we have all rallied behind the NHS in its response to the pandemic, it would be wrong not to accept that there have been misjudgements along the way and there may be claims to be considered in due course.
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The biggest challenge, of course, in relation to such claims will be cost-effective pursuit and the sourcing of litigation funding. In this regard a number of factors should in fact increase the options for claimants:

  • The Civil Litigation (Expenses & Group Proceedings)(Scotland) Act 2018 is now largely in force. This enables solicitors to enter into Damages Based Agreements (contingency fees based on the a percentage of the award/settlement); to gather together groups of similar claims to pursue together (at much reduced cost); to access litigation funding from commercial funders (of whom there are many in the market); and to purchase After the Event Insurance to protect against adverse costs awards in the event of failure (except in the case of personal injury and medical negligence claims where “One Way Cost Shifting” means claimants will not be liable for expenses from the end of June this year).
  • Litigation Funders and insurers are, as a result, actively looking to invest in Scottish claims and we are seeing regular contact from them offering a variety of interesting options.
  • The Courts have embraced technology and remote hearings and electronic filings are the order of the day (with great benefits in cost and efficiency). Likewise, mediation and ADR are using technology to speed up resolution and cut cost and travel inconvenience. Delay, worry and expense need no longer be the prime fear of the potential claimant.

Even the most hardened crystal ball gazers are reluctant, given the events of 2020, to make rash predictions. However, what we can say is that improved claims handling and increased PI cover in the market present a real and important option for businesses and individuals struggling with the economic implications of what has happened to them.

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