Throughout the Grenfell Tower Inquiry, the press has quite rightly kept the cladding fire safety crisis at the forefront of its reporting. On 14 February 2022, the Government published its proposed amendments to the Building Safety Bill. The purpose behind the Bill is to improve safety and performance of all higher-risk buildings in England & Wales. This means buildings that are at least 18m in height or have at least seven storeys and two residential units. They do not currently address buildings below 18m. The Bill will be further reviewed over the coming months with the aim of becoming law later in the year.
Jen Hamilton is RPS managing director of design
The Government describes the Bill as bringing “the biggest changes to building safety regulations in a generation”. It aims to set out a clear pathway for the future of constructing and maintaining residential buildings. It’s clear that following Grenfell, developers and contractors procuring the development of higher-risk buildings are being asked to step up to ensure risks are adequately considered and managed.
But what has not made the headlines is a developing crisis in the construction sector caused by the post-Grenfell drive to apportion blame and liability. Professional indemnity insurers who have enjoyed the receipt of premia pre-Grenfell have subsequently baulked at the risk of claims that professional indemnity cover ‘claims made’ entails. This means insurers typically cover all legal liabilities for claims made (i.e.notified) in a current policy year. In other words, on each annual renewal, insurers assume the insurance risk related to any historic cladding issues for which their customers are alleged to be responsible as a result of potentially negligent advice or supervision by architects, consultants, fire safety consultants. Projects in construction can go as far back as 2007, and under the Building Safety Bill, this may be extended significantly.
As a result, many insurers have exited the fire safety market completely. Those that remain have drastically increased premia in response to increased risk of liabilities for remedial costs. Some smaller firms have ceased to trade, or have been forced to invoke clauses seeking to extract themselves from contractual insurance obligations they can no longer afford. This is on the basis the required cover is no longer available at ‘commercially reasonable rates’. Some larger firms are charging insurance surcharges to pass on the increased costs to their clients. The fire safety cover generally available in the market is now extremely limited, and brokers advise it may be entirely withdrawn in future renewals leaving consultants potentially uninsured in the event of a claim.
The insurance cost inflation comes at a time when firms are also feeling the squeeze of unprecedented increases in wages and a scarcity of skilled resources. Add to this the crucial actions that need to happen over the next decade to stay on the right side of climate change, and both the sector and society it serves arrive at a nervous tipping point. To reduce meet the goals of the Paris Agreement, we will need disruptive innovation – finding ways to do things in a completely new way. This is the type of out-of-the-box, not been done before innovation which climate change requires. But in the hardest professional indemnity cycle in most of our working lives, which firms are willing to take on the risk of being pioneering? And who will step forward to advise on fire safety remedial works?
The answer you’ll likely find is not many.
The introduction of the EWS1 form highlighted the ludicrous nature of the blame game in the sector. A naïve, or ill-advised firm at the bottom of the construction food chain, may be prepared to sign what amounts to a guarantee of fire safety. But few clients want to allow the time and budget to do what is actually required to sign it with any degree of certainty. This is an example of the lack of joined up thinking across the sector. The form was devised by RICS presumably without consultation with the insurance market, who have refused to provide cover for the forms.
This is all sadly unsurprising in an adversarial industry that has long seen the consultant’s professional indemnity as a radiable project contingency. Leading industry brokers report that 66% of all amounts paid out by professional indemnity insurers in the UK construction sector are related to legal costs.
Adopting different insurance models
Perhaps we could learn a thing or two from the Scandinavian model where standard form contracts with sensible levels of insurance and liability are mainly used. Where required for larger complex projects, top up project professional indemnity policies are used. This ‘shared’ insurance means the policies are mainly used to fund remedial costs not legal costs. In Denmark for example, engineering firms use a cooperative approach where they pool their premia and insure at lower levels.
Until this systemic change takes place in the UK and Ireland, firms will be very wary about stepping forward and advising on any fire safety remedial issues. Those that do would be well advised to ensure they have an evaporation clause – meaning their liabilities in relation to fire safety claims would be limited to the amount of any available cover, at the time of a claim. This is of critical importance with cover being increasingly narrowed, and threats of cover being withdrawn completely.
But where will the driving force for this change come from? Not the Association of British Insurers (ABI), whose members arguably benefit from the current trends. Perhaps the Association of Consulting Engineers, RIBA, or the Institute of Structural Engineers? The sector is so diverse and segmented that no single strong voice exists to provide the necessary leadership. Firms cannot take collective action for fear of breaching competition laws.
Future fit insurance cover
Perhaps there is another parallel with climate change. In a lacuna of leadership, the short-term answer may lie with individual action. The crisis could present an opportunity to build back a better professional indemnity system that benefits more than the lawyers, and also supports climate innovation in design.
Those that need help to make unsafe buildings safe should adopt a reasoned approach, where those involved in commercial negotiations during tender and project start up phases really seek to understand the terms on which advice and help can be offered by consultants without assumption of unreasonable liabilities for little reward.
We all have a responsibility. Taking an individual stance to drive the required change will ensure the terms are right for our profession to step forward and help address the shameful legacy of unsafe buildings which a failed system allowed to be constructed.
*Jen Hamilton is RPS managing director of design
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