Post-Grenfell - the ongoing implications for construction professionals and their Insurers
Jonathan Anslow and Ruth Lawrence addressed the annual Professional Indemnity Conference in Cambridge on 9 July examining the claims they were seeing, the trends and the defences open to professionals. Here they look forward to what the next few years may hold.
The Grenfell Tower fire on 14 June 2017 tragically resulted in the loss of 186 lives. It also triggered the most wide ranging review this country has ever seen of fire safety in high rise buildings and the way in which those buildings were designed and constructed.
The Public Inquiry is ongoing with the report on Phase 1 expected later in 2019 and Phase 2 to commence in early 2020. Dame Judith Hackett reported in the summer of 2018 (Building a Safer Future) criticising the current regulatory framework but shying away from banning combustible cladding. The Government acted in November 2018 restricting the use of combustible materials in “external walls” on any “relevant” buildings with a storey over 18 metres.
On 18 December 2018 the Ministry of Housing, Communities and Local Government (MHCLG) announced a full scale technical review of Approved Document B of the Building Regulations. A consultation on the scope of the technical review has recently concluded and the substantive review should commence shortly. In addition to this, the Government has made funds available in both the public and private sector for remedial works. The theme underlying all the reviews is that regulation of the construction industry is overdue and a stronger enforcement regime is required. The message is that the construction industry needs to change.
This progress has seen increased claims activity against construction professionals. Although the issues arising out of Grenfell are ones of fire safety, overall the claims that are being pursued against construction professionals are based on the combustibility of the cladding panels, their core (in the case of an ACM panel), or the underlying insulation.
The design responsibility for cladding tends to be split between cladding consultants and architects. This split varies between contracts and, as such, so does the respective responsibility for the cladding materials used.
Fire safety engineers are likely to have primary responsibility for these materials if they have provided a fire strategy that permits the use of combustible cladding materials, or a desk study/ test data that justifies their use. In practice this is rare. Frequently, they have some responsibility because they have provided a fire strategy which does not adequately set out the building regulation requirements for the cladding materials. Alternatively they have been made aware of, or been consulted on, the use of cladding materials and not questioned their use.
Many construction professionals are facing claims. In part this has contributed to the reduction in insurers’ appetite for writing construction professional indemnity. Premiums are increasing and cover is often being reduced. Insurers are moving away from “any one claim” limits of indemnity to aggregate limits especially in relation to fire safety notifications. The problems facing Approved Inspectors are well-documented with reports of further firms looking to wind up their businesses later this year.
So what does the future hold some two years on from the tragic events at Grenfell?
We consider that the number of new claims (including notified circumstances that become claims) may not be significant and we anticipate a lot of the potential claims have already been reported:
- It is over two years since the Grenfell Tower disaster
- The risks posed by cladding and the need to replace cladding was highly publicised immediately following the Grenfell Tower disaster
- It is widely known that insurers are generally reducing cover for such claims and claimants will therefore have been keen to make sure claims are notified whilst they enjoyed more favourable policy terms
- There generally appears to be a lack of appetite for pursuing these claims, largely due to the fact that there are often credible defences and in our experience a significant number of the notifications were made on the policyholder’s own initiative without being prompted by a potential claimant
However there is the potential for developments that could give rise to a late claims surge including:
- The outcome of the Grenfell Enquiry especially where standstill agreements have been put in place pending that event
- A reported judgment in favour of a claimant on a claim of this type
- The three year anniversary of the Grenfell Tower disaster is in June 2020 when claimants may start to have limitation concerns on older projects
Looking ahead over the next two to three years we see significant challenges for construction professionals as new regulatory regimes are established and the building codes re-written. We do not, however, expect this to result in a “tsunami” of claims.