Professional liability - market insights April 2025

The current and future impacts of AI on the professions 

The rapid development of AI, especially GenAI, will bring transformative and significant opportunities to the professional liability space. As AI continues to permeate the sector, firms are being compelled to adapt and rethink traditional practices. Professionals and their service providers must navigate the technological, regulatory and legal challenges introduced by AI.  For insurers, there are additional challenges around coverage and pricing.

In the short term, we foresee an increase in risk through “AI washing” – where firms oversell their AI capabilities. In the same way as insurers unintentionally provided “silent cyber” cover 20 years ago, we may see silent AI:  cover for AI-related losses, where insurers have not considered the implications of existing wordings for new types of claim.

In the long term, we may see the scope of PI policies expand to categorise AI failures as a standard risk and close any gaps in coverage.  The market may also see new solutions that specifically cover AI developers against third party claims from the ultimate user in the event of failure.

Trends for financial professions  

Claims against accountants continue to rise with over 30% of the client complaints related to auditing. This trend is likely to continue in 2025, with a predicted rise in company insolvencies. Where companies fail, the focus will naturally turn to auditors to establish if there was anything that could have been done at an earlier stage to prevent the insolvency.

The government has confirmed its intention to strengthen corporate governance in the UK by transitioning the FRC to a new watchdog, the Audit, Reporting and Governance Authority (ARGA) via the draft Audit and Reform and Corporate Governance Bill (once it is tabled before Parliament). Exactly when audit reform will be implemented remains to be seen, but the dominance of the “Big Four” will be diluted  as ARGA aims to improve competition. Already, “challenger firms” have begun to audit larger companies. We might expect claims to arise from those firms entering steep learning curves.

The budget announced on 30 October 2024 introduced new taxes, including increases in employers’ NI, capital gains rates and inheritance tax on pensions and agricultural property. Tax advisers will have to navigate an increasingly complex system to advise their clients on effectively managing their tax burden. These changes may increase the risk of negligent advice.  

Looking beyond 2025, we anticipate that the number of client complaints against the financial services market will continue to rise, given the increase in regulatory oversight. In particular, claims management companies will now face fines for bringing unmeritorious claims to the FOS. 

Primary limitation for COVID-19 claims against professionals will expire from 2026. We have seen a resurgence of COVID-19 claims, particularly against accountants and brokers.  Given the economic climate and increasing appetite for litigation, we predict that this trend will most likely continue.

Solicitors’ claims on the rise 

Our data shows that the number of claims against solicitors has been rising for the last fifteen years. The last five years (since 2019) have seen a particular spike in the volume of claims being made, driven by higher numbers of lower value (less than £100,000) claims. The majority of these claims arose in the property practice area (46%) of which, 36% related to negligent advice.

Looking ahead to beyond 2025, the data suggests that the property and private client areas will continue to catch the eye of insurers as practice areas presenting the largest areas of risk, and it will be interesting to see whether the changes in practice that had to be implemented as a result of the COVID-19 pandemic will lead to these two areas accounting for even larger numbers of claims in the coming years. The recent tax changes implemented by the Labour government could result in even greater numbers of claims in this area. This could, in turn, lead to greater pressure on premiums for firms who specialise in these areas.

Impacts of the Renters’ Rights Bill on property professionals 

The Renters’ Rights Bill aims to transform the private rental market, enhancing tenants’ rights and living conditions. New amendments to the Bill require valuers to consider the new minimum safety and maintenance standards when assessing whether a property is suitable for rental. These proposed standards will also affect property managers, who will need to advise and protect landlords against the risk of fines or penalties for renting out non-compliant properties. To minimise risk, we suggest property professionals include appropriate caveats in their terms and conditions.

A 2022 review by the FCA 2022 found that broker remuneration from leasehold property insurance rose by 40% between 2019 and 2022.  Managing agents who shared in secret commissions paid when properties were insured are likely to face significant claims unless they can show that payment reflected fair value.

We have also identified the Renters’ Rights Bill as a key topic in the Real Estate section.

Impacts of building safety and remediation claims against construction and property professionals

We are starting to see the resolution of building safety / remediation claims. Developers, contractors, and other potential claimants are now looking at recovering damages against the downstream players. This, in turn, has increased exposure for professionals involved in the design and construction of buildings. This may also result in issues of underinsurance as insurers rely on fire safety sub limits or exclusions. We expect to see recovery claims pursued against other parties, such as the product manufacturers.

We may also see remediation claim parties casting the recovery net wider where claims against the original contractor and  /or design team are time barred. Going forward, we may see claims for failure to warn and / or failure to advise on valuation uncertainty against building surveyors, property managers or even valuers who advised pre-purchase.

Following publication of the Grenfell Tower inquiry phase two report and its recommendations on fire safety policy, we predict that landlords and property owners will spend more time reviewing smoke ventilation and fire suppression systems to ensure that these systems operate as required. Consequently, we may see an increased focus on fire safety claims which will heighten M&E claims risk. We will also see a rise in internal defects claims, for example concerning defective fire doors. Insurers will not be surprised by the increase in claims and notifications, which may be pursued when fire safety exclusions are lifted. However, the delay in the identification of affected buildings may result in coverage disputes that centre around fair presentation and known circumstances.

Insolvencies 

The current economic climate means that we have unfortunately seen an increase in insolvencies, particularly within the construction industry, mostly impacting contractors. Consequently, an increased number of claimants are looking to pursue claims directly against the insurers of insolvent l. Under the Third Parties (Rights Against Insurers) Act 2010, third parties (such as employers and developers) have the right to bring proceedings directly against insolvent companies’ insurers, without first having to establish the liability of the insured.

Insurers may face further difficulties as a result of the decision in Riedweg v HCC International Insurance Plc [11.11.24] and may be prevented from making a recovery claim against a third party, where the insured (if solvent) would have been able to seek a contribution.

We have also identified insolvencies as a key topic in the Construction section.

Case Developments 

The importance of pursuing the correct entity

Roger Leggett & 40 Others v American International Group UK Limited (AIG) [12.02.25]

This decision relates to the hearing of a preliminary issue.

The 41 claimant individuals instructed Giambrone & Law (“the partnership”) or its successor practice, Giambrone Law LLP (“the LLP”) to act for them in abortive purchases of off-plan holiday homes in a development in Calabria, Italy.

AIG was the professional indemnity insurer of Giambrone Law LLP for claims made against the practice in the period 1 October 2008 to 30 September 2015.

The claimants sought a declaration under the Third Party (Rights Against Insurers) Act 1930 that AIG was liable to indemnify the damages awarded to the claimants, in light of the LLP’s insolvency. AIG accepted that the policy provided indemnity in relation to loss awarded against the LLP and the partnership, but defended the claims on two grounds. The first ground, namely that the policy did not respond to the claims because the LLP was not the entity liable for the breach of duty which caused the loss, was the focus of this hearing.

The court determined that AIG’s policy only responded to a judgment obtained against an insured entity if that entity was the one responsible for the damages awarded. The court clarified that the partnership was responsible for the damages awarded and accepted AIG’s submissions that, whilst the policy provided cover for both entities, it does not transfer liability from one to the other to effect an indemnity for the LLP in respect of liabilities of the partnership.

This claim was pursued by the claimants under the Third Parties (Rights Against Insurers) Act 1930.  It remains to be seen whether the same situation could arise under the 2010 Act – specifically, it is likely that Insurers would now be joined to the underlying litigation.

Loss of Chance in Broker Negligence Cases

Norman Hay PLC v Marsh Limited [30.01.25]

This decision clarifies the approach to be taken towards assessing damages in brokers’ negligence cases where there is alleged to have been a failure by the broker to arrange suitable insurance cover.

An employee of IMP, a subsidiary of Norman Hay, was killed in a road traffic accident in the US whilst driving a hire car. Ms Sage, the driver of the other car, brought proceedings against the employee’s estate, Norman Hay and IMP for the employee’s negligence. Those proceedings were settled for the sum of $5.5m. Norman Hay subsequently sued Marsh, its insurance broker, for failing to arrange insurance cover to indemnify it against liabilities arising from the use by employees of hire cars in the US. Marsh applied to strike out the claim arguing, amongst other things, that Norman Hay had failed to plead that either it or IMP was actually liable to Ms Sage and that any liability insurance policy would have only responded upon proof of such liability. Marsh’s application was dismissed at first instance and it appealed to the Court of Appeal.

Marsh’s appeal was dismissed.  Males LJ held that whilst in a claim against an insurer for an indemnity, an insured must prove that it was actually liable to the third party. The approach is not the same for claims against insurance brokers for negligence. Instead, the court considered the broader question of whether, as a matter of business, the insurer would have paid out in any event, notwithstanding the ‘true’ position as regards liability.

The key question is “what would the putative insurer have done if faced with a claim for indemnity?” Would it have stood on its strict legal rights or would it have taken a pragmatic/commercial approach to payment?

That question must be answered by applying ‘loss of chance’ principles. If the liability of the putative insurer would have been clear, no discount should be applied to the claim. Conversely, if there would be no valid claim under the policy, the claim would not reach the necessary standard of a “real and distinct, rather than merely negligible, prospect of success” for the insured to recover. Anything between those parameters would result in any damages awarded being reduced to reflect the likelihood of the outcome. Here, the question of whether or not Norman Hay/IMP was actually liable to Ms Sage was just one factor of the counterfactual analysis of whether any payment would have been made by the putative insurer. The full analysis would be a matter for trial and not in this instance – an application for summary judgment.

This decision emphasises the distinction between the approaches to be taken towards proving claims against insurers for an indemnity and claims against insurance brokers for negligence. In the latter, the question is what decision would the insurer have taken in reality, as opposed to what decision the insurer was strictly entitled to take as a matter of law.

The interaction between the Third Parties (Rights Against Insurers) Act 2010 and the Civil Liability (Contribution) Act 1978 

Riedweg v HCC International Insurance Plc [11.11.24] 

In 2016, the claimant contracted to purchase a property valued by Goldplaza Berkeley Square Ltd (Goldplaza) for the sum of £8 million. The claimant contended that the property was negligently overvalued, and, consequently, she was unable to complete on the purchase, or assign the sale contract. The property eventually sold for £5.5 million. The claimant was sued by the seller of the property but agreed terms of settlement giving rise to a liability of £2.2 million.

Goldplaza entered into voluntary liquidation in November 2021. The claimant accordingly pursued a claim to recover the £2.2 million against Goldplaza’s professional indemnity insurers, HCC International Plc (HCC) under the Third Parties (Rights Against Insurers) Act 2010 (the 2010 Act). HCC then applied for permission to bring a Part 20 contribution claim (pursuant to the 1978 Act) against the claimant’s solicitors, Forsters LLP, in the underlying transaction. The court was asked to decide whether the damage allegedly caused by Forsters was the “same damage” (the requirement for a contribution under the 1978 Act) for which HCC were potentially liable to the claimant.

The judge concluded that HCC were not potentially liable for the “same damage” for which Forsters may be liable pursuant to the 1978 Act. HCC’s application was dismissed, although permission to appeal has been granted on the basis that the judge considered the issue merited appellate level authority.

In light of this judgment, a subrogated claim in the name of the insured now appears to be the only route through which insurers facing direct claims can overcome the “same damage” predicament for the purposes of seeking contribution from third parties.

We also discuss this case in the Property section.

Highlighting the need for robust defences when awarding costs

Afan Valley Ltd v Lupton Fawcett (a firm) & Others [08.10.24]

The defendant, Lupton Fawcett, successfully defended a professional negligence claim brought against them by 43 liquidating companies with a combined deficiency to creditors totalling over £68 million. The claimants alleged the defendant’s negligent advice was the cause of the deficiency. The claimants further argued that, but for the allegedly negligent advice, they would not have promoted inappropriate investment schemes, accepted investment monies or taken out unsuitable loans. The High Court dismissed these claims, striking them out entirely, however, the defendant’s victory was not all-encompassing.

In October 2024, the presiding judge (Mr Justice Sheldon), in a consequential matters judgment, held that it would be inappropriate for Lupton Fawcett LLP to receive an award for all of its costs as ‘this would not reflect the overall justice in this case’. Mr Justice Sheldon identified a number of flaws in the defendants’ arguments, which were deemed to reflect the need for a significant reduction in recoverable costs. as a result, Lupton Fawcett was only awarded 75 percent of its recoverable costs.

The judge’s decision not to award full costs highlights important issues for the professional liability sector. For example, this costs decision emphasises the requirement for robust and comprehensive defences to all aspects of a claim, reminding professional liability solicitors that victory at trial, where a claim is struck out, does not necessarily lead to full recovery of costs where a defence contains significant deficiencies.