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Another liability gap is opened up in court

The judicial onslaught against IFAs&#39 professional liability continued this week when the Court of Appeal ruled employees are liable for advice given on behalf of their employers.

The decision in the case of Merrett v Babb exposes individual advisers to professional negligence claims where the firm they worked for is no longer trading or has insufficient insurance.

The case concerned a surveyor, previously employed by a now insolvent company, who found himself personally liable for a mortgage valuation he carried out seven years earlier. Industry lawyers say the ruling applies to all employees providing specialist advice, including IFAs.

In the judgment, Lord Justice May said: “Prudent professional employees will obv- iously want to ensure they are covered personally by their employers&#39 insurance and may need to take steps to obtain personal insurance if cover does not continue after their employment ends.”

But many advisers face an almost impossible task getting run-off cover as they will not have the relevant information required by indemnity insurance companies, such as clams&#39 history.

CMS Cameron McKenna partner Peter Maguire, who represented Mr Babb, says: “This is an alarming decision. Individuals giving advice are now in the firing line and their salaries do not necessarily reflect their exposure to liability.”

The case comes within weeks of two other cases, Cave v Robinson, Jarvis & Rolfe and Glaister v Greenwood, which both effectively relaxed the time limits for bringing negligence claims against IFAs.

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