Insuring against a bad survey

SURVEYORS who fail to notice the symptoms of subsidence can be collared for compensation, through legal protection insurance. Legal action against a surveyor is likely to be prohibitively expensive for an individual, but if the case is backed with an insurance policy the risk-reward balance improves.

Independent on Sunday reader George Price (not his real name) contacted the paper so that other readers could benefit from his experience. His Sussex house has a problem from subsidence, caused by dry weather, clay soil, nearby vegetation and shallow foundations. The problem is not severe and has probably been put right by expert pruning of trees and bushes. But the symptoms are likely to put off any potential buyer should Mr Price want to sell in the future.

If Mr Price had not taken out a legal protection policy, he would have been unable to afford to sue the surveyor, and the loss would have been his alone. In fact he had two policies - one with the Law Club (formerly branded Allianz), for which he pays pounds 67 a year for pounds 50,000 of cover, and another with Hambro, costing pounds 7.50 as part of his home contents policy to give him a further pounds 10,000 of insurance. This slightly complicated things, as both insurers had to agree that Mr Price had a good case. They will split the cost of the action between them.

Although Mr Price's case has not yet come to court (which is why his name is being withheld), he and his insurers are confident of success. External cracks had been repaired by a previous owner and were only spotted by Mr Price when they reopened during last summer's hot spell. Internal cracks had been diagnosed by the surveyor as being caused by a "slight weakness of roof timbers", supposedly put right at the vendor's expense before the sale of the house was completed.

There might also have been a valid case against the seller, as either he or a previous owner must have known that there had been subsidence trouble but had failed to mention it. "If the vendor knows of a defect he is obliged to advise the estate agent or purchaser," says Geoff Roscoe, a solicitor with the Rawthorn, Edelsthorns practice in Leyland, Lancashire.

Rawthorn, Edelsthorns is promoting a new insurance product, Home Buyer Legal Protection, that provides pounds 25,000 of legal cover for three years after home purchase. The policy costs a one-off sum of pounds 40 and is underwritten by Europ Assistance. It covers not just negligence by surveyors, but also contractual disputes with builders, sellers or mortgage lenders.

Mr Roscoe says that home buyers should be willing to challenge surveyors whose reports turn out to be wrong. "Anything that is patent, they have a liability for," he says. "If it is latent there is no liability." In other words if the surveyor should have identified the problem then he has a liability, but it it wasn't an obvious problem he has a good defence.

The Home Buyer Legal Protection policy was launched by another solicitor, Raymond Connor. He had been stirred by media reports of surveyors who had got away with shoddy surveys. "Surveyors often put in more caveats than reports," he says, "but the law is clear that if they should find a defect they are liable."

This view is shared by the Halifax Building Society, which advises buyers to obtain either a home buyer's survey or a full structural survey rather than just a basic valuation report. "The liability of a surveyor does depend on the type of report commissioned," points out a Halifax spokeswoman. "A basic valuation report is for the building society, though there is a duty of care to the customer. If it is a home buyer's report it doesn't matter who has engaged the surveyor, there is a legal liability if there is negligence. But the negligence has to be an omission that leads to a loss in value."

Where negligence is proven, the liability of a surveyor is for that loss in market value compared with the valuation, not for the cost of putting a fault right. In Mr Price's case the liability calculation works to his advantage, as remedial work is cheap, and the claimed drop in market value is higher.

Surveyors will normally have professional indemnity insurance, so are unlikely to pay personally for any negligence. The surveyor's insurer will usually pay up when a good case is made by the home buyer's legal protection insurer. Where the surveyor has no indemnity insurance, or is otherwise unable to meet the costs, there is a possibility that action will be successful against the mortgage lender if it engaged the surveyor, who was therefore acting as the lender's agent.

The Law Club says that although its policy only covers civil cases, its 24-hour helpline will also advise on any personal legal problems, such as providing the number of a suitable solicitor if a client is arrested. The most common call on the Law Club's policies are for holiday disputes and personal injury claims. The policy carries an excess of pounds 50.

DAS is another provider of legal protection cover, selling policies through mortgage lenders. The policies usually cost between pounds 10 and pounds 15 a year.

Home Buyer Legal Protection 01968 678989; DAS Legal Services 0117 929 0321; Legal Protection Group 0181-652 1313; Law Club 0345 078755.