When innocent mistakes may prove costly

Limitation - perpetual liability for professionals

Recent English cases leave professionals facing possible perpetual exposure to claims for innocent mistakes. This extension of the limitation period may also affect the directors' & officers' market.

Under the Limitation Act (the Act) the basic limitation period (apart from personal injury) is six years from when a cause of action arises. However, if claimants do not initially know they have a claim, the limit is extended until the later of (i) six years, or (ii) three years from when the claimant realises he has a claim. Except for personal injury, there is a 15 year long-stop.

If a defendant deliberately conceals a claim, there is no 15 year long-stop - a claimant has six years to bring a claim from when he discovers concealment. The Act provides that "deliberate commission of a breach of duty in circumstances where it is unlikely to be discovered for some time amounts to deliberate concealment…."

In Brocklesby v Armitrage, a solicitor had assured his client that there was nothing to worry about following a transaction the solicitor had carried out, so the client did not investigate a potential claim against the solicitor. The Court of Appeal held that to be "deliberate concealment", it was only necessary that there had been an intentional act which concealed the claim. There was no need for some "dishonourable act". The solicitor's assurance was intentional, and so was deliberate concealment, although he was not dishonest.

In Liverpool Archdiocese v Goldberg, a charity sued a barrister over tax advice. He raised a limitation defence. The charity argued that if he had been negligent, he had breached his duty - as the breach was unlikely to be discovered for some time, it was deliberate concealment for the purposes of the Act. The Court of Appeal agreed with the charity.

Conclusion

Errors in professional services frequently remain undiscovered for years. Such mistakes may now count as deliberate concealment, however innocently made. Those insuring a professional practice could be exposed to errors made years ago, when the risk profile was very different. Conversely, since retired professionals could now face claims arising from ancient errors, there may be a greater need for run-off cover.

"Insurance Day" 14th November 2001