The information contained on this page is subject to the disclaimer on the Important Notice page

 

On 7 January 2020, the Low Risk Valuation (LRV) Scheme Amendment will be effective in all states and territories of Australia. In a nutshell, this means that: 

all APIV members will be able to take advantage of the lowest liability cap of $1 million for any claims related to LRV work, even if the assessed value of the property is really high; and
as of your firm's relevant professional indemnity insurance renewal date, LRV work with high assessed values will no longer increase your liability cap or minimum professional indemnity insurance requirements.
  

1. What is the LRV Scheme Amendment about?

The current APIV Professional Standards Scheme (APIV Scheme) does not recognise the fact that the exposure of occupational liability is not always proportionate to the assessed value of real property.

Under the current APIV Scheme, APIV members who complete high value / low risk valuation work are required to carry a greater amount of coverage under their PII Policy than is otherwise realistically required.

For example, if an APIV member conducts a rating valuation of a real property and assesses its value at $7 million, the minimum PII coverage required to be held by that Member, (and consequently the liability ‘cap’ that will apply) in the next PII policy period will be $3 million (Category C Member). This is the case even though the actual likelihood of any claim arising from rating valuations is extremely low, and the risk of a claim exceeding $1 million is virtually non-existent.

Accordingly, the purpose of the Low Risk Valuations Scheme Amendments (‘LRV amendments’) is to distinguish Low Risk Valuations (eg rating valuations) from higher risk Valuations of Real Property (eg mortgage valuations) to ensure that the liability ‘cap’ for claims arising from members’ occupational liability is more commensurate to the actual risk attached to the work carried out by APIV members.

2. How does the current APIV Scheme determine the Monetary Ceiling (‘liability cap’) for a member?

Currently, an APIV member’s membership category sets out the applicable monetary ceiling and maximum excess allowed under the Scheme. Membership Category for each member is determined by reference to the member’s highest single valuation amount in the 12 months prior to the inception/renewal of their policy (‘Upper End Value’) as follows:

3. What will be the liability cap arrangement under the amended APIV Scheme?

There will be two liability caps under the Scheme:

Proposed liability cap of $1M for all work categorised as LRV, supported by 14 years’ worth of claims data held by APIV; and
For all other (non-LRV) work, a liability cap based on the Upper End Value current PII policy period​​​​​​.
 

4. List of LRV Categories

Any valuation of real property undertaken:

in the capacity as an arbitrator;
for the purpose of making a binding determination (eg. rental determination, marital dispute) as an expert and where all relevant parties have agreed to indemnify, release or hold the valuer harmless in respect of any liability in connection with the valuation;
for financial reporting purposes (excluding special purpose financial reports prepared in respect of a specific transaction such as any sale, takeover or initial public offering);
for rating and taxing purposes;
for the purpose of providing expert evidence in relation to a proceeding before a court or tribunal where the expert’s primary duty is owed to the court or tribunal (excluding resumption);
for resumption purposes; or
for the purpose of advising on the insurable value of real property in connection with any proposed purchase of insurance.
  

5. What does this mean in terms of PII compliance under the amended APIV Scheme?

For APIV members exclusively undertaking Valuations of Real Property that are categorised as LRV under the amended APIV Scheme:

Liability for any claim arising from LRV work will be capped at $1M, provided the subject LRV work has been undertaken after the effective date of the LRV Scheme amendment. (See section 7 below for details on effective dates.)
If your firm's PII policy renews on or after 7 January 2020, the minimum PII coverage required for the 2020-2021 policy period under the amended APIV Scheme will be $1M (plus $500,000 to cover defence costs, depending on how the policy is structured). 
Going forward, Upper End Value will not be relevant in determining your firm's cap so long as you only undertake LRV work. 
 

For APIV members undertaking Valuations of Real Property that is a mixture of both LRV and non-LRV work:

Liability for any claim arising from LRV work will be capped at $1M, provided the subject LRV work has been undertaken after the effective date of the LRV Scheme amendment. (See section 7 below for details on effective dates.)
Liability for claims arising from real property valuations other than LRV work will have a cap level based on the Upper End Value (excluding LRV work) for the relevant period.
If your firm's PII policy renews on or after 7 January 2020, the minimum PII coverage required for the 2020-2021 policy period under the amended Scheme will be the higher amount of the two caps (plus $500,000 to cover defence costs, depending on how the policy is structured).
  

For APIV members exclusively undertaking Valuations of Real Property that that is not categorised as LRV work:

As with before, liability for claims arising from all real property valuation work will have a cap level based on the Upper End Value for the relevant period.
As with before, the minimum PII coverage required for your firm under the amended Scheme will be the higher amount of the two caps (plus $500,000 to cover defence costs, depending on how the policy is structured).
  

NOTE: If you are seeking to reduce your PII coverage based on your new cap, please ensure to obtain independent legal/financial/insurance advice before you do so. If the PII coverage sought is lower than a cap that your firm has had in the past, you may not be able to rely on the Scheme to cap your liability in the event of a claim.

You will need to be comfortable that any claim made against you or your firm will not exceed the PII coverage sought. For this reason, the APIV strongly recommends that you consider keeping the higher PII coverage for at least 7 years. 

6. My firm undertakes LRV work. Do we need to prepare our systems in any particular way?

The APIV recommends that APIV member firms arrange their systems and processes in a way that will enable them to readily verify if a valuation is an LRV.

This will assist them in completing the annual APIV membership renewal process and in their discussions with their PII broker.

7. Are there any transitional issues that members need to know?

Due to a legislative discrepancy in South Australia and Australian Capital Territory, the LRV Scheme Amendment will be effective as below:

For claims proceedings brought under the law of SA – 16 July 2019;
For claims proceedings brought under the law of ACT – 8 November 2019; and
For claims brought under law of NSW, NT, Qld, Tas, WA or Vic – 7 January 2020.
  

This means that, if there is a claim in respect of a valuation of real property undertaken by your firm between 16 July 2019 and 7 January 2020, there will be 2 versions of the APIV Scheme that may be applicable to the claim, namely:

the APIV Scheme, not amended by the LRV Scheme Amendment; and
the APIV Scheme, amended by the LRV Scheme Amendment.
  
This also means that a different liability cap may apply to the claim, depending on:
which state/territory's law the claim is brought under; and
when your firm's PII policy renews.
  
There will be further guidance and resource materials available on this matter in January 2020. If you have any questions in the meantime, please do not hesitate to contact the APIV Team on (03) 9644 7500 or via email at apivadmin@api.org.au.
  

8.  I have read everything but still have a question? 

If you have any questions, please contact the APIV office via email at apivadmin@api.org.au or on (03) 9644 7500.

For a copy of the amended APIV Scheme instrument and amended APIV Insurance Standards, please check out the APIV Resources page.