The Building Safety Act 2022: What about the insurance implications?

The Building Safety Actⁱ was passed in June this year and while the act recognises the need for a culture change in how buildings and developments are planned, designed, constructed, commissioned and managed, it does not tackle the insurance fallout.

The tragedy at Grenfell Tower on 14 June 2017 in which 72 people lost their lives highlighted the significant failings of the UK’s existing regulatory regime for high-rise buildings. In the wake of this modern disaster, Dame Judith Hackitt was appointed to undertake an independent review of the current governing regime for residential buildings over seven storeys or 18 metres in height.

The review report titled ‘Building a Safer Future’ⁱⁱ was published in December 2017 and concluded that the current regulatory system was not fit for purpose, making over 50 recommendations for the Government to consider and implement. It identified the need for a “culture change”, with a need for certainty surrounding the roles and responsibilities of those procuring, designing and constructing high-rise buildings, as well as the competence of industry, with expectations to be demanded.

One of the key points Dame Judith Hackitt recommended was that dutyholders had an obligation to “ensure” that certain obligations were met at each stage of the construction process (‘Gateways’) to ensure the work complied with applicable safety standards and building regulations. It recommended that the industry adopt a new culture in the way in which buildings and developments were planned, designed, constructed, commissioned and subsequently managed.

The UK Government’s response

The Government response was to implement a tri-part process: indicating that it would review and implement Dame Judith Hackitt’s proposals in full. However, the execution of the same is to be undertaken in three separate stages, namely:

• Part one: The passing of the Building Safety Act 2022, which has overhauled the previous regulatory regime by creating the Building Safety Regulator and Gateways.
• Part two: This will include the implementation of detailed regulations, which are to be issued by the Secretary of State and that will, amongst other things, set out the detailed obligations that will be owed by dutyholders.
• Part three: This will involve the creation of a new system of building regulatory regime control, which will provide clarity on the terms of the functional requirements and on how those functional requirements are to be achieved.

Issues for the industry arising from the Building Safety Act 2022

In early 2021, the Government produced a consultation paper outlining its initial proposals for the obligations to be imposed on dutyholders. These proposals were subsequently withdrawn, but arguably fell far short of what was envisaged by Dame Judith Hackitt. To date, alternative proposals have yet to be published. At present, there is ambiguity over what those duties will provide.

The Insurance issue

Since the Building Safety Act 2022 came into force on 28 June 2022, there remains uncertainty over how the Government intends to implement parts two and three of the legislation. Nevertheless, there are a number of challenges and issues that will need to be addressed. These include:

The specific obligations of dutyholders

The Act does not spell out the nature of the obligations that will fall upon those responsible for the commissioning, design, construction and management of buildings. To what extent will each dutyholder have an obligation to ensure compliance with relevant Building Regulations? Will dutyholders need to prove they are working in a collaborative and transparent manner? Will a dutyholder be able to absolve themselves from liability by engaging others to undertake the works on their behalf? To what extent will the new legislation require, not merely a new culture for those directly involved in the construction industry but also their insurers and brokers?

Extension of Limitation Periods

The extension of Limitation Periods under the Defective Premises Act 1972ⁱⁱⁱ from six years to 30 years retrospectively and 15 years prospectively, seems to have been imposed by the Government without consideration as to whether insurers will absorb this much increased period of potential liability. How will this impact professional indemnity insurance? How will the insurance industry respond? So far, several insurers have responded by adding new exclusions in policy wordings from renewal. Many policies are already providing exclusion clauses for these circumstances. The extension of Limitation Periods may also require amendments to be made to standard form building contracts.

Building Liability Orders and the challenges in circumstances in which these are to be applied

New means of recourse, such as Building Liability Orders under s.130 of the Building Safety Act 2022, will present fresh challenges and will give rise to numerous questions. In what circumstances will these be granted against ‘associated’ companies, who might seek such an Order. Will insurers pursue such a claim as part of their subrogated rights?

New Building Regulations

New Building Regulations will need to be adopted by the industry, however these have not yet been published.

Summary

The issues identified above will present challenges to the insurance market and will be considered and discussed in a series of subsequent articles. What is clear is that the “old way” of commissioning and delivering projects will have to change, which will also include how policies may need to respond.

Our next article in the series will examine how those in the construction, building repair and maintenance sectors and landlords can mitigate the risk of claims arising against them. In the meantime, we strongly recommend clients thoroughly review the way they document and store records to ensure they retain sufficient information to defend any allegations of wrongdoing which may arise.

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