Falling property values could lead to increased lawsuits
With the commercial and residential property sectors under increasing pressure, professional indemnity (PI) insurers are bracing themselves for a significant rise in claims says Flaxman Partners, a leading firm of independent professional liability risk consultants. As falling property values and an unstable economy inevitably lead to an increase in defaulted loans and a growing rate of repossessions, lenders may well look to recoup their losses by suing the surveyors, lawyers and accountants involved in the valuation, application and conveyancing processes.
Roger Flaxman, managing partner at Flaxman Partners, comments: “The predicted decline in property values, a slowing economy and the inevitable growing number of repossessions and property owners defaulting on their loans is causing concern to PI insurers. Lenders will seek to recover their losses and could well go after the mortgage brokers, lawyers, accountants and surveyors who originally advised on the deals. History has shown that these claims can be difficult and expensive to defend; very often there is insufficient documentary evidence on the professionals’ files to give them a robust defence.
“Insurers are also seeing more evidence of mortgage fraud, driven particularly by organised crime syndicates, where professional advisers may have been induced to collude in the fraud by inflating values and misleading lenders. Combined with the prevailing property and financial market conditions, this could see a significant increase in PI insurance premiums together with a tightening of terms and conditions.”
