Professional Indemnity FAQ

Valuers and why they are considered a bad risk

Valuers - why are they considered a bad risk?

Bad-debt ridden British banks and building societies are lodging a huge number of negligence claims against Valuers as they attempt to recover their losses from property-loan defaults.

The evidence at this point is as usual generalised although insurance brokers say the rise in allegations and claims against them are up to seven times higher than last year.

Some industry observers say the claims is the price of the property bubble, and retribution for the alleged collusion between valuers and agents that drove the price of residential and commercial property into the stratosphere at the height of the boom.

However, others believe that lenders, battered by a glut of bad debts in a sector that turned rotten amid a crisis they created themselves, are merely looking upon Valuers as an easy target to stem losses from defaults and refinancing.

Although the bulk of this latest spate of claims comes from the residential property market, it is the commercial sector claims which tends to bring about the most protracted cases and the most expensive to settle.

A big number of fishing letters are being received by insurers with 50 to 100 residential properties named on them, all casting doubt on whether the Valuer's advice given at the time the loan was provided was accurate. If the valuation can be proved to be incorrect, the lender can seek redress, seeking to make up the shortfall exacerbated by the current market conditions.

Smaller firms are most exposed in the event of claims, often because they are less able to demonstrate that there is a rigorous and robust risk management system in place.The problem too is that lenders will review the professional advice given when loans were initiated making those professionals vulnerable to reputational damage.

It is common practice to pursue those involved in large defaults but the Banks are claiming the numbers of such investigations are not as large as indicated.

While there is usually a serious lack of solid fact in many of the claims from the lenders, there is often an enormous amount of cost, time and effort that must go into defend these claims.

It is no different in Australia and it is why they are not Australian Insurers favourite risk to cover.

Professional Indemnity for Valuers is not easy to get. It can be done but insurers are fussy.

Kestrel Holdings Pty Ltd v APF Properties Pty Ltd [2009] FCAFC 144 is a matter which can demonstrate why.

Valuers may have to rely on representations by vendor to valuer which could be misleading and deceptive. If so could the valuer be negligent in preparation and presentation of valuations when it was provided with misleading and deceptive information? Then how should the damages be assessed? On a “no transaction” basis?

In 1999 Kestrel Holdings Pty Ltd wanted to establish a farming operation in opposition to a company with a monopoly over the industry in Tasmania. For this purpose they retained a merchant banker who in turned retained Boyd Partners Limited (Boyd), a Melbourne firm of chartered accountants, to obtain funds from investors. Those investors required valuations of the properties. Boyd retained Mantach Whitemore Valuations (Mantach) to provide the valuations.

Kestrel, through its director Mr Robinson provided Mantach with information and a report from Agtech Rural and Horticultural Consultants (Agtech report). Agtech Rural did not exist. The Agtech report was fraudulently prepared by Mr Robinson. Mantach had the report and information from Mr Robinson when valuing the properties. The properties were overvalued.

APF Properties Pty Ltd was created for the purpose of acquiring the properties and purchased the properties on 8 August 2001 based on the overvaluations. APF later sold the properties at a loss and commenced proceedings against Kestrel, Mr Robinson and Mantach.

Mantach cross claimed against Kestrel and Mr Robinson. The trial judge concluded that Kestrel and Mr Robinson had engaged in misleading and deceptive conduct in providing Mantach with incorrect information and in providing Mantach with the Agtech report.

The trial judge also concluded that although Mantach was entitled to rely on information provided by Kestrel and Mr Robinson, Mantach owed a duty of care to APF in preparing the valuations and ought to have known that a third party such as APF would rely on the valuations. Mantach had been negligent for failing to make independent inquiries.

The trial judge found in favour of APF against Kestrel, Mr Robinson and Mantach for damages of $894,568 plus costs. Damages were assessed on a “no transaction” basis, that is, the difference between the price paid (the valuation figures) and the value of the properties at the time of sale.

Judgment was given for Mantach on its cross-claim against Kestrel and Mr Robinson for the full amount of APF’s loss. The Full Federal Court upheld the trial judge’s findings that even though APF was not a client of Mantach’s, the circumstances that existed meant that Mantach owed a duty to APF to take reasonable care in the preparation and presentation of the valuations. Mantach had prepared the valuations negligently, and had engaged in misleading and deceptive conduct by placing values on the properties without having a proper basis to do so.
The Full Federal Court upheld the trial judge’s findings that the information given to Mantach by Kestrel through Mr Robinson regarding the croppable areas of the properties was misleading and deceptive, and that information had misled Mantach. However, the Full Federal Court overturned the trial judge’s finding that Mantach had relied on the Agtech report in assessing the values of the properties on the basis that that finding was not supported by the evidence.

The Full Federal Court held that the trial judge had erred in assessing damages by the difference between the price APF paid for the properties and their true value because APF was being induced only to pay a higher price for the properties that it was going to purchase any way. Damages were therefore assessed at $398,000 which was the difference between what APF paid for the properties and their value according to another valuation APF had obtained around the time of Mantach’s own.

The Court ordered that Kestrel and Mr Robinson were jointly liable for 50% of the damages awarded to APF, and that Mantach was liable for the remaining 50%.

 


 

Latest News

Three Years running - Insurance Brokerage of the Year 1 to 5 staff

Mandy and Robert Cooper were extremely honoured and astounded to once again win, Insurance Brokerage of the Year for 2020 from Insurance Business Australia magazine. This is the third year running.

While this year has not been the easiest of years for the business with Covid 19, the Recession, the hard market and issues at Lloyds of London, we are literally all in this together as an Insurance Industry.

CPR Insurance Services continues to make our clients the number one focus of our business while managing our relationships with Insurers, who we need more than ever in this market climate.

CPR Insurance Services are a highly ethical Brokerage with a reputation as a trusted advisor who always acts in the Client's best interests. Their experience, knowledge and expertise is amongst the highest in the industry.

CPR Insurance Services is now ten years old as a business and is proud of being an Authorised Representative of Ausure and their partnership with Steadfast, giving CPR the strength and backing to match it with any Broking firm in the Insurance Industry, but remain focussed on supporting the Small to Medium business segment.

Memberships of the National Insurance Brokers Association, Australia and New Zealand Institute of Insurance and Finance, Australian Insurance Law Association, Australian Professional Indemnity Group and the Australian Institute of Company Directors, ensures CPR Insurance Services maintains the high standard of knowledge and expertise required to be one of the best Brokerages in Australia.

CPR Insurance Services also plays a strong role in their local community supporting other Sporting Clubs and Community organisations. They also support and promote local businesses with their operation of the Kedron Brook Business Group who meet regularly and has 174 members.

We are truly honoured to receive this National award once again for the third year as a recognition of CPR Insurance Services contribution.

read more

Finalist for QLD Broker of the Year

Robert Cooper was honoured to be nominated as a finalist for Queensland Insurance Broker of the year for 2020, as part of the National Insurance Brokers Association. Unfortunately he missed out on the ultimate award but is a reflection of the high standard that the industry now has for such awards.

read more