Many critical projects have been put on hold, including numerous schemes to replace combustible cladding which have been ongoing following the Grenfell disaster.
Although the government has pledged a GBP1bn ‘Building Safety Fund’1 to remove and replace unsafe cladding systems on high rise buildings, remediation work has been intermittently paused at sites across the UK due to coronavirus. At the end of Sept 2020 remedial works to remove ACM cladding systems had only been completed on 236 buildings, leaving 220 buildings with ACM cladding still in place, 115 of which are currently undergoing remedial works2. In addition to this there are approximately 1,700 buildings with combustible non-ACM cladding above 18 metres, which by the government’s own estimate puts the cost to remediate all buildings at between GBP3 – 3.5bn. This in turn means the fund will only be sufficient to meet 1/3 of the total number of buildings2.
Cleary, combustible cladding systems and the impact of COVID-19 on the remediation work has been of great concern to those living in buildings where it is present. Furthermore, for policy holders seeking Professional Indemnity (PI) cover for design works undertaken in relation to these buildings, whether relating to the original construction or remedial works, the market is very challenging. Fewer insurers are willing to provide remedial costs cover for cladding and fire safety risks in these circumstances and many are imposing full cladding and fire safety exclusions. As a result of this reduced capacity, many policyholders are struggling to secure cover for cladding and fire safety risks as insurers increasingly cite concerns over the evolving legislation and speculate that the Building Safety Bill may lead to further notifications in this area.
It’s no surprise that insurers are now seeking additional information in order to consider providing PI cover for cladding and fire safety risks, meaning the process has become complex and time-consuming. Some of the key points underwriters are seeking further information on when assessing PI cover in an ‘at risk’ building are detailed below.
Cladding specifics
There are a number of key pieces of information that policy holders should provide as part of their proposal forms and supporting risk information.
These include:
- Declaration on the extent of the cladding project review undertaken by the business
- This should include details on all projects still within limitation period where the policyholder provided or been responsible (including contractually) for providing any advice, design, specification, inspection, supervision, or professional services in any way related to or in connection with façade materials and should not be limited to just those buildings with ACM systems
- Did the scope of the review also extend to projects falling under 1) Government advice note 14 2) Government advice note 22 and the Requirement B4 of Building Regs 2010
- The project name and height of building
- The specification of the cladding and insulation materials utilised on each building
- Are all materials used of limited combustibility (class A2 or higher) or has the system achieved BR135 classification via a BS8414 test
- Identification of those projects that have been previously notified to PI insurers as claims or circumstances that are reasonably believed may give rise to a claim
- Confirmation of changes made to all facades and external wall systems following the December 2018 amendment to Building Regulations
- Policy holders approach to managing fire safety issues in buildings including focus on passive fire protection systems including fire doors, fire stopping and compartmentation
Depending on the answers to the above, further information may still be required from insurers. The detail and level of accuracy provided from outset can often help to determine the terms and conditions that the market in prepared to offer Ensuring all of this information is available prior to commencing renewal negotiations is essential.
Fair Presentation
In accordance with the Insurance Act 2015, before any contract of insurance is formed, policy holders have a duty to provide the insurer with ‘fair presentation’ of the risk, which means they must provide insurers with all material information that they know or should know as part of the data gathering process. Any failure to provide this information may affect your policy response, and impact upon the extent of any cover that can be secured at renewal. Many Insurers will refuse cover for cladding and fire safety risks not only for legacy projects but also for projects going forward without full details of all the above including certainty around the extent of any prior notifications that have been made to insurers.
In order to maintain PI cover for cladding and fire safety risks, we recommend you discuss with your broker any information requirements well in advance of your cover start or renewal date. This will give both you and your broker adequate time to review and provide assistance with the effective presentation of this information to your insurers. In the current professional indemnity market conditions for construction professionals, evidencing the extent of project reviews covering all aspects of façade systems and fire safety risks as part of any detailed and qualitative submission, is now more important than ever before to secure terms.
For further information or for advice on PI insurance please contact our specialist construction insurance team. Our industry focussed team of specialists including brokers and claims colleagues have the capability and capacity to deliver a proactive service and obtain suitable insurance terms.
1. https://www.gov.uk/government/news/new-1-billion-building-safety-fund-to-remove-dangerous-cladding-from-high-rise-buildings
2. https://www.gov.uk/government/publications/building-safety-programme-monthly-data-release-september-2020
Conditions & Limitations
This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note we have relied on information sourced from third parties and we make no claims as to the completeness or accuracy of the information contained herein. It reflects our understanding as at [19/11/2020], but you will recognise that matters concerning COVID-19 are fast changing across the world. You should not act upon information in this bulletin nor determine not to act, without first seeking specific legal and/or specialist advice. Our advice to our clients is as an insurance broker and is provided subject to specific terms and conditions, the terms of which take precedence over any representations in this document. No third party to whom this is passed can rely on it. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to fullest extent permitted by law. Should you require advice about your specific insurance arrangements or specific claim circumstances, please get in touch with your usual contact at Gallagher.
