This paper follows our July article on the implications for Professional Indemnity Insurance (PII) following the Grenfell Tower fire.
Government position on cladding
Since the July article The Department for Communities and Local Government (DCLG) has established the Building Safety Programme to identify buildings which are of concern through a thorough checking and testing process. Numerous screening and large scale tests have been carried out by the Building Research Establishment (BRE) to identify whether Aluminium Composite Material (ACM) cladding samples, from a number of high rise buildings, meet the limited combustibility requirements of the Building Regulations guidance. The results of the tests were damning with 266 of the 278 buildings in England that were screened failing the test, meaning the samples tested did not adequately resist the spread of fire to the standard required by the Building Regulations.
The tests to date have been carried out on high rise residential buildings but there are also concerns about fire safety in hospitals, schools, shopping centres and many other types of buildings. The cost of fire safety improvement works on residential blocks will run into the hundreds of millions and the government have already said that they are not going to provide any funding to councils carrying out improvement works. Will councils look instead to the insurance industry to bear some of the cost?
PII Insurers position on cladding
The results of the Government testing has the potential to impact a number of different types of professional services firms from architects, engineers, surveyors and design and build contractors. The suggestion is that a large number of parties may have contributed to the situation so when the claims do arise this will implicate multiple PII Insurers. There is significant concern in the insurance industry due to the scale of the problem, however, the feedback from most Insurers to date suggests that they will not seek to immediately withdraw or change cover mid-term for existing clients involved in the design, installation or specification of cladding but they will expect detailed information on this work at renewal of the policy. In response to their concerns many Insurers have prepared specific questionnaires to accompany the proposal form and the information provided by the client will determine Insurers commitment to providing cover going forward or whether they decide to restrict cover in some way or increase premium rate for this work.
Advice for our clients
It is important that you are proactive in managing your risk so we recommend that you undertake a thorough review of all your projects involving buildings with cladding undertaken in the past 12 years. You should notify us immediately if, when undertaking a review of your work, it highlights a particular concern about any past or present projects you have been involved in or if one of your clients has raised a question about the type of cladding used, whether government guidelines have been followed or whether it complies with building regulations / fire safety. Care needs to be taken on what is being notified and we can advise you in this regard.
For any current or future cladding projects you need to consider carefully your approach to cladding and maybe put in place additional protocols; making sure your scope of duties/responsibilities are very clear, additional training, limiting your liability under contract and anticipating likely changes to Building Regulations.
A reminder of the typical questions / information which will be required by Insurers is outlined below but these will differ from Insurer to Insurer and will be dependent on what type of professional services firm you are:
• Have you worked on, designed, installed, procured or specified any cladding for projects?
• Have you worked on, designed, installed, procured or specified any cladding for projects where Aluminium Composite Panels have been used?
• Do any of these projects exceed 18 metres in height
• Have been involved in any way with the testing, specification or sign off of any cladding system
• Please confirm that no complaints / issues have been highlighted on any cladding projects for which you have provided a professional service.
• Please provide details of the five largest cladding projects that you have worked on, designed, installed, procured or specified.
It is important that you provide renewal information to us as early as possible before your renewal date in case there are complications with the renewal and/or Insurers require additional information.
The government’s interim report on the Review of Building Regulations and Fire Safety is expected this year with the final report expected in Spring 2018. In the meantime uncertainty will remain over what claims may arise from the use of ACM cladding but if you have any concerns about the issues highlighted in this article please communicate these to us and we and your Insurers can work with you and provide support and guidance in managing any potential exposure you may have.
We will continue to communicate any updates we receive from the PII market and any recommended actions you can take to mitigate a negative response from Insurers at the renewal of your PII.