Property developers, construction specialists and specifiers need to understand the implications of the new Building Safety Act (BSA)1 on their insurance protection and should be reviewing their risks with a specialist insurance broker.
Liability is the thread running through the new legislation, introduced on 28 June 2022. The new Act has changed the way in which the Building Act (1984) and the Defective Premises Act (1972) view failures in building and construction duty of care, and has extended the protections available to leaseholders living in defective buildings2.
Rather than contractor liability now being just six years, with regard to retrospective claims for defects, Section 135 of the BSA has extended the liability period to 30 years, for claims arising before 28 June 2022. For those after this date, there is a prospective 15-year period of limitation.
Damage caused by any breach of the Building Regulations, to any building in England and Wales, can now also lead to a claim going forward, although not retrospectively, with the period of indemnity being 15 years.
Furthermore, parent and sister companies can now be deemed liable for claims related to building safety risks caused by a developer within their group or associated company structure.
Contractors and developers should not believe this regulatory tightening up only applies to cladding scenarios. The extended liability period actually covers all claims with legitimacy under the Defective
The changes could now lead to an increase in claims relating to property defects, particularly since a test case, brought by Martlet Homes Ltd against Mulalley & Co Ltd, found Mulalley liable for defective work carried out between 2005-8, when refurbishing 1960s concrete tower blocks in Gosport.
The claimant was also awarded costs relating to the ‘waking watch’ services, required to keep residents in the buildings safe, given the cladding fire risk and the need for 24/7 buildings’ monitoring. An £8m award was granted by the Technology and Construction Court (TCC), to reimburse Martlet for the cost of the complete removal and replacement of the dangerous cladding, plus ‘waking watch’ costs, covering the costs of one of the two fire marshals for which they claimed4. This sets a precedent for other similar actions.
There could be some stormy times ahead, made more problematic by the fact that some project paperwork, from 30 years ago, may no longer exist to disprove liability.
In seeking to protect leaseholders from the costs of remedial works, the new legislation seems to be looking to insurers to pick up more of the tab for the cost, but this may not be possible. Since the Grenfell disaster, many policy wordings have had exclusions for cladding claims added.
As insurers consider the changes in legislation brought about by the BSA, there could be other developments in the insurance market. The Professional Indemnity (PI) market has already seen the withdrawal of various insurers, and others could follow. PI premiums could rise still further, despite already having witnessed significant increases. Insurers may impose more exclusions and be keener to see contractors and developers take up higher levels of self-insurance, shifting more risk exposure to the insured, rather than insurer.
It is imperative that anyone involved in the property market talks to a broker who understands their risks and can help steer them towards the right protection. Conversations need to be had long before policy renewal, to ensure the broker understands the depth of the risk issues that could be involved for the client, and that have enough time to discuss the risks and coverage required with appropriate markets, to give the client the right coverage for the risk.
Similarly, whilst many contractors and developers may have audited potential latent claims exposures stretching back six years, they must now also review the picture over the last 30.
Affected firms should also work with a broker who is used to using project recording methodologies and can ensure there is a robust audit trail, to act as a body of evidence in any future action. They should be reviewing their supply chain and assessing whether sub-contractors have the right level of Professional Indemnity cover. Contracts need to be specific with regard to who has responsibility for what. Any contractual agreement that is fluid, in terms of where liability lies or the scope and extent of liability, should be avoided.
With a big increase in potential retrospective liability, plus the ruling on cladding liability, there has never been a greater need to work closely with a broker who can help protect your business against liability claims in the optimal way. If this topic has touched a nerve, get in touch to start the discussion about your risks today.
2 https://www.ellisonssolicitors.com/news/building-safety-act-2022-changes-to-the-defective-premises-act-1972-and-the-building-act 1984/#:~:text=These%20changes%20came%20into%20force,of%20completion%20of%20the%20works