CONSULTING ENGINEERS this week faced the prospect of being unable to obtain insurance after the Law Lords exposed a bizarre legal loophole in contract law.
The loophole has emerged from a House of Lords judgement on a case involving a fire on a building site.
The Law Lords unanimously upheld a Court of Appeal decision that consultants were liable to pay for the cost of a fire on a site even though they were not proven to be at fault.
The ruling affects contracts under the standard Joint Contracts Tribunal (JCT) form, but insurance experts said that it had much wider implications.
'This is another example of unfair liabilities being imposed on consultants, and another example why consultants could soon become uninsurable, ' said Association of Consulting Engineers broker Griffiths & Armour managing director Stephen Bamforth.
'The insurance market is going to say that this is a nonsense and will walk away from consultants if this trend continues. Consultants will become uninsurable, ' he warned.
The dispute arose when a generator - designed and built by contractor Hall - went on fire during commissioning tests at the site of the nearly completed headquarters of the Co-operative Retail Services in Rochdale in March 1995.
Main contractor Wimpey and Hall both were covered by the contractor's all risks insurance policy for the project. It paid out for the fire damage to the building, much of which had to be rebuilt.
But legal advice given to the contractor's insurers said they could claim from the consultant Hoare Lea & Partners and architect Taylor Young Partnerships, as they were not covered under the all-risks policy specified by the JCT form. This policy only insures the contractor, subcontractors and client.
The consultant and architect were then sued. The legal battle which followed centred on whether the contractor and subcontractor should pay towards the damage.
To enable the point to be tested in court, the consultant and the architect accepted partial blame along with the contractor and sub-contractor despite no proof of fault being determined by the court.
The House of Lords decided that the under the contract, the consultants should pay the total cost for the fire as they were not covered by the contractor's allrisks policy.
Cover for both was limited to their professional indemnity insurance.
'The judgement means that under this JCT form, a contractor has no liability for a fire, regardless of whether they caused it or not, ' said Hill Dickinson professional indemnity partner Ruth Lawrence. She advised consultant Hoare Lee.
'Even if a contractor is 90% to blame for a fire, the consultant must pay 100% of the cost. , ' she said.
Association of Consulting Engineers legal director Nora Fung said that the case had serious implications for consultants.
'It means consultants can't make a claim against a contractor for a contribution to the cost of damage caused by a fire on site. And at present, there are no insurance products available to cover consultants against this kind of risk, ' said Fung.
The ACE is seeking urgent discussions with the Association of British Insurers and the Joint Contracts Tribunal over the issue.
Remedies for consultants would include amending the JCT form or including them for cover under Contractors' All Risks policies.
Lawrence said that putting a 'net contribution claim' into contracts - in effect a cap on consultants' liabilities proportional to their degree of blame when things go wrong - was another option. But such provisions would depend on clients' agreement, and in many cases would not be acceptable as it exposes them to more risk.
ICE technical adviser Drick Vernon said that the judgement strengthened the case for project based insurance rather each party having their own cover.
'Everyone would be covered by one policy, rather than consultants being sued by contractors' insurers, ' he said.
A JCT spokeswoman said a decision on whether to amend the contract form would be made by September.
Bamforth said that an amendment to the JCT form protecting consultants would 'send a positive message to the insurance market' that the industry is prepared to share risk fairly.