Insurance implications for cladding projects post Grenfell
Remains of exterior cladding on Grenfell Tower following last June‘s fire
Insurers have been taking an extremely cautious approach to writing cover for cladding and high-rise projects since the Grenfell fire, and premiums are climbing. Ian Gregory explains.
The Grenfell Tower fire was always likely to have significant consequences for cladding contractors and their professional services providers. And one of them is the likelihood of huge increases in their insurance premiums, specifically for professional indemnity insurance.
Since the tragedy, there has been huge concern about fire safety and the use of certain types of composite panelling and cladding on buildings. Attention is on buildings over 18m in height, with a focus on aluminium composite material (ACM) panels – the type used on Grenfell. Insurers are reviewing their positions and their responses will not be particularly comfortable for the policyholders.
Insurance brokers are already seeing reactions from insurers which include:
- Not writing business where any level of cladding is included in the activities being undertaken;
- Placing endorsements on the policy which completely exclude cladding comb-ustibility cover;
- Offering cover with restrictions; and
- Not offering cover for contracts working above certain heights.
Regarding risks specifically involving cladding and associated activities, there is now a very cautious approach across the insurance market. Those insurers who continue to offer cladding cover now require considerably more detailed information prior to cover placement and during the pre-renewal period. The information provided will influence an insurer’s decision to offer or reject a request for insurance, and may even result in refusal to renew an existing policy.
Typical questions asked by insurers include:
- Is there any involvement with high rise buildings?
- Are façade and insulation materials fire resistant or non-combustible?
- Will the building benefit from a sprinkler system?
- Do all materials comply with building regulations?
- Will all materials be installed according to the manufacturer’s recommended use of the product?
If it is considered that there is exposure to any of these risks, insurers could impose higher policy excesses and restrict indemnity limits.
Additionally, insurers will recommend construction firms review past work carried out, to ensure policy cover is adequate. Insurers will need to be informed of works that have previously involved materials now considered to be of concern, as this may well impact on the cover provided at future renewals.
Policyholders should remember that, following the Insurance Act 2015, they have a duty of “fair representation”, which means they must provide insurers with clear, correct and up-to-date information. A failure to identify and disclose potential risks, including those from historic works, may well affect cover, and the policyholder will find that future insurance claims could be repudiated.
What does all this mean for contractors? What is apparent is that insurers are dram-atically increasing premiums, which have seen a marked uplift across the sector. It is potentially very worrying for policyholders.
Ignoring the need for basic business protection cover, professional indemnity insurance is usually a contractual requirement, not only for the duration of the contract, but often for 12 years if the contract is written under ‘seal’ (which means it has been signed by all the parties, witnessed and executed as a deed).
However, building contracts such as JCT will normally contain a proviso that cover may be purchased at the limits or indemnity stated, subject to the premiums quoted being available at commercially reasonable rates.
The situation is currently uncertain. Over the next 12 months and beyond, claims arising from cladding design and installation are likely to remain at in the spotlight. The approach from insurers will continue to be very cautious.
Ian Gregory is a director at chartered insurance broker MPW, part of the Clear Group