An Insurance Perspective on the Assumed Liability Exclusion in AS 4122-2010

Damian Harrison , 3 December 2013

Damian Harrison, of BJS Insurance Brokers, comments on recent concerns about the ‘assumed liability’ exclusion in AS 4122–2010.

A piece by Richard Young in the July 2013 Communique raised some possible issues relating to the AS 4122–2010 amendment, regarding the ‘assumed liability’ exclusion. This suggested that three clauses within the Australian Standard contract – clauses 4, 23.4 and 28 – “may result in claims that enliven the ‘assumed liability’ exclusion under the Architects Facility policy.”

In response I would make the following points:

Clause 4 relates to the standard of care that the consultant must perform in providing their services. This is a simple restatement of the common law position, i.e. you are expected to perform to the normal anticipated professional standards, or to higher expectations if this is what you have promised. As such, it is not clear why an insurer would see this clause as a potential problem.

Clause 23.4 insists, “The Consultant must ensure that its officers, employees, agents, sub-consultants and sub-contractors comply with the Consultant’s obligations under this clause 23” (namely confidentiality obligations). I am not sure of the exact extent of the concern, but it may relate to these obligations being passed onto any subconsultants/subcontractors.

In such a case, any implication that architectural practices don’t have responsibility for sub-contractors or sub-consultants is erroneous. Once an architectural practice has engaged sub-consultants or sub-contractors, that practice has vicarious liability for the actions of their sub-consultants or subcontractors. Further, I would argue that the architect has the professional responsibility to select sub-consultants carefully and to do everything possible to ensure that they are competent, understand their responsibilities, and live up to their clients’ expectations. In essence this means passing onto the other consultants the same responsibilities the architect has taken on.

Clause 28 is the indemnity clause, which may cause reason for concern. However, compared to some consultancy agreements, it is concise and does not attempt to impose absolute liabilities. It is limited by a reduction in the liability caused by the principal (28.2a), and is limited further still by the principal failing to mitigate the loss (28.2b), and by the opportunity for aggregation in Clause 29.1 (item 24 of the annexure). Nevertheless, there is still potential that an insurer could refuse to deal with a particular claim, if the liability has only existed because of the contract.

In my own work at BJS Insurance Brokers in relation to these issues, a few of our main insurers have recently given us the option of incorporating two extensions onto their policies, namely:

a)  Cover for contractual liability whilst carrying out the business (of an architect), and

b)  Any contractual requirement for architects to opt out of proportionate liability legislation.

The stumbling block at this moment in time is who can get this cover. From the insurer’s perspective, firstly it has to be commercially viable – i.e. the premium must be high enough to warrant its inclusion. Secondly, they want to ensure that it is only given to architects who have good risk management practices in place.

Insurers provide these extensions as a secondary measure. That means asking for any unfair or unwarranted clauses to be removed (such as hold harmless, indemnity or proportionate liability). If all else fails and they are not able to secure the required alterations with the principal, then at least they will have some form of additional protection under their professional indemnity policies. 

Damian Harrison is a senior account manager at BJS Insurance Brokers

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