Court of Appeal decision - employees liable

In a Landmark test case, Merrett v Babb, the Court of Appeal has ruled that employees will constantly be vulnerable to claims brought directly against them for advice given on behalf of their employers.

The appeal- that was supported by the Royal Institution of Chartered Surveyors - was brought by a Mr John Babb, a member of the RICS. Following the insolvency of his former employer, Mr Babb found himself personally liable for a mortgage valuation that he had carried out over seven years earlier.

The Court of Appeal's ruling will impact upon all sectors and professions where employees give specialist advice to clients on behalf of their employers. Professional employees will be particularly vulnerable if their firm or company:

• has ceased trading and has no run-off cover
• is under-insured and cannot meet the full claim
• is unable to pay the excess due under the policy
• is unable to obtain indemnity from their professional indemnity insurers as a result of a coverage dispute.

These risks have been exacerbated by recent Court of Appeal decisions on limitation, the effect of which has been to give Claimants many more years in which to commence proceedings.

The Court of Appeal emphasised that prudent employees - whether professional, or otherwise - would wish to ensure that their employers' insurance covered them personally and that such employees may need to take steps to obtain personal insurance if that cover did not continue after their employment ended.

Whilst the Court of Appeal's observations are highly germane, such insurance cover is not, as a practical matter, presently available to former employees.

The remuneration that employees receive is not commensurate with the risk of attracting a personal liability and such an exposure is unlikely to be contemplated by them. If the majority decision of the Court of Appeal stands, it will leave all employees who provide specialist advice - whether professional or otherwise - exposed to personal liability. Professionals in small firms are likely to face the greatest exposure.

Mr Babb, with the support of the RICS, is petitioning the House of Lords for leave to appeal.

If you would like any further information please contact Peter Maguire on +44 (0)20 7367 2893 or at [email protected]. Peter acted for Mr Babb and the RICS and is a partner in our insurance and reinsurance group.