ACM (aluminium composite material) is an acronym of huge concern to insurers covering risks in the UK design and construction sectors. This type of cladding, deemed responsible for the rapid spread of fire in the Grenfell Tower tragedy and made with an aluminium skin and polyethylene core, could be viewed as having given all cladding a bad name as far as the insurance markets are concerned. The appetite for insurers to provide relevant covers is not a keen one.
Construction professionals working, or having worked on buildings carrying cladding, façades or rain-screens, are struggling to buy the Professional Indemnity insurance they require.
Even those not handling cladding projects are having to demonstrate their lack of involvement in such projects in time-consuming ways and then typically paying an inflated price for their insurance policy, if cover is offered. Insurers are often demanding firms look back at past jobs as far back as 10 years ago, to reassure them that no claims could arise.
Some insurers are not differentiating between safe and unsafe cladding and are so nervous about insuring building-sector businesses, they have pulled out of the Professional Indemnity (PI) market altogether11.
Others are limiting potential exposures by charging considerable premiums and applying high excesses12, or specifically operating a blanket exclusion on claims relating to cladding or the supply of goods and products.
One insurer strategy is that of changing the basis of cover for construction risks involving cladding, offering a similar level of overall protection but spreading this across aggregated claims, rather than “any one claim” as was previously the case13. Designers and contractors can discover their previous civil liability cover is now negligence-only protection14. Another approach is that of not covering historical cladding projects involving buildings over 18m in height15 or current or future high-rise projects.
The situation is not likely to improve for the foreseeable future and even steps to assist those dwelling in ACM-cladded buildings is turning the spotlight on to insurance covers. The Government has established an ACM Cladding Remediation Fund, to ensure ACM is quickly replaced on private residential buildings, having become tired of landlords and building owners not taking action.
Their advice to building owners is to actively “identify and pursue all reasonable claims” against those involved in the cladding installations, making warranty claims where possible.” The Government then expects money from successful warranty claims to be paid back16.
Some designers and contractors may believe it impossible to find PI cover. Our advice is for these individuals to source a broker with in-depth construction sector experience and liaise with that broker, several months before policy renewal, to create the best possible presentation of risk to put before an insurer.
If the previous insurer is still underwriting PI risks, they will need reassurances about possible exposures, through a detailed presentation of risk. This will require answering probing questions about former projects, detailing past claims and the reasons for them, being transparent about former contracts and contractual terms, and highlighting how risk is currently being mitigated.
Many insurers will be more inclined to say “no” to risks, current or new, and it will most likely take a lot of work and the input of a skilled broker to swing things and get a “yes” - and a ‘yes” on reasonable terms. Put the time into helping your broker with their mission and steel yourself for the terms on which you may have to accept an offer of PI insurance.
Some insurers are not differentiating between safe and unsafe cladding.