The Building Safety Act: Some professional indemnity insurance considerations

Increased claims activity

Ultimately, anything that could lead to increased claims activity will concern Insurers, and a raft of complex enforced changes against an ongoing backdrop of fire safety concerns could certainly be conducive to further related claims (of which a huge number have been made since the Grenfell tragedy). Fire-safety related claims have frequently proved long and protracted, and lengthy disputes can be very costly for Insurers. Greater regulatory and stakeholder scrutiny on building projects, particularly in relation to fire-safety matters, is likely to unearth more problems.

Confusion and uncertainty

Confusion in relation to the still-evolving regulations is likely to prove fertile ground for non-compliance, and it will be particularly challenging for smaller firms without appropriate resource who are perhaps not so used to this heightened level of responsibility. Insurers will be wary about individuals operating without appropriate experience and competence. There’s still some uncertainty as to exactly what constitutes Duty Holder ‘competency’, yet an onus on Duty-Holders to ensure competence.

Extended limitation

The BSA updated the Defective Premises Act (DPA) to include refurbishment projects, and extended limitation periods for compensation claims (up to 30 years for retrospective works). This gives scope to claims being made in relation to previously time-barred issues (or possibly even the reactivation of time-barred matters) and is a key concern for insurers. Clearly, historic documentation going back many years may not be readily available, and project teams are more likely to have moved on, meaning some ‘first-hand’ accounts that could have proved invaluable from a claim defensibility perspective will be unavailable. Further, with an evolving scope of potential fire / building safety issues (and regulations) comes the risk that additional matters which could prompt PII claims will emerge.

A duty to warn

Another consideration stems from the BSA’s requirement for designers to take the work of all other designers on a project into account, with a duty to report any potential non-compliance with all requirements to the Principal Designer. This requirement creates a potential ‘duty to warn’ exposure for those designers should they fail to discharge those duties.

This is far from an exhaustive list of concerns. Ultimately, given the BSA’s infancy (and absence of case law), PII insurers will need to keep a watching brief. They will need to wait until cases go to trial before getting a better understanding as to how courts will interpret all aspects of the new legislation.

No change so far

To date, we have not seen any additional restrictions imposed on construction / property PII policies in relation to the BSA legislation - beyond the standard Fire Safety and Cladding claim restrictions and/or exclusions that have been enforced on most PII policies since the Grenfell Tragedy (pre-dating the BSA). So, PII policy coverage would typically apply to liabilities arising from the BSA, subject to policy terms and conditions.

Each wording is different

Of course, each PII policy wording needs to be reviewed on its own merits, to ensure that the coverage provided is sufficient and that there are no exclusions which could serve to carve out coverage, nor definitions insufficiently wide to preclude potential indemnity.

Defence of criminal / regulatory proceedings cover

Non-compliance with aspects of the new BSA regime is a criminal offence, and Duty Holders have statutory responsibilities in relation to a building’s safety. Possible sanctions from the Building Safety Regulator include potentially unlimited fines, even imprisonment. Whilst fines / criminal liability wouldn’t be covered under a PII policy, construction & property sector PII policies will usually include some cover in respect of costs incurred in the defence of criminal / regulatory proceedings brought under various statutory regulations relating to building or construction works (always with certain caveats). Firms should check that their PII policy includes such protection and ensure that the BSA legislation would act as a trigger for said cover.

Understand what is required

Clearly, firms will need to understand exactly what is required of them on all ‘in-scope’ projects, to ensure that all responsibilities and obligations are discharged. Indeed, given the concerns about the complexity and wide-reaching scope of the still-evolving BSA, it would be prudent for firms to ensure that there are individuals with an understanding of the BSA to be attached to all projects. If firms don’t have such expertise to hand, then they should consider engaging external help.

Engage with insurers

For good order, firms should inform their PII insurers if they will be acting as Duty Holders for the first time. If so, insurers may seek appropriate comfort as to their competency for these roles, and in respect of the insured’s risk management processes, controls and initiatives in respect of the new regulations. As always, being able to evidence that robust risk management procedures and controls are in place and entrenched will be valuable. In providing detail about any new roles and responsibilities stemming from the BSA, an insured could use it as an opportunity to show how their internal procedures have ensured that they have been and will continue to be able to pre-empt, understand, adapt and act accordingly in respect of these legislative changes.

Document retention

Document retention has always been important from a PII perspective, not least in terms of claims defensibility. The extension to limitation periods will amplify its importance, as the ability to call on information going back decades could make all the difference in the defence of a claim which creeps out of the woodwork after many years. Further, the BSA imposes an obligation on Duty-Holders to report safety-related incidents to the Building Safety Regulator, and to ensure that essential information about a building’s design, construction, and maintenance is preserved and accessible throughout its life. In terms of the BSA’s competence requirements (and in anticipation of potential claims), firms should also ensure that they are able as best possible to demonstrate their competence and also that they have the required ‘organisational capability’ (as defined in the BSA) to discharge their role – keeping such evidence on file. And of course, firms will need to be able to confirm and evidence that the various new BSA roles and responsibilities have been adhered to in the event of a claim.

Contractual liabilities

Firms should be careful to ensure that the contractual terms into which they enter don’t extend their duties beyond the statutory role (for example, in terms of the breadth of duty or the duty of care they’re contractually held to), and that they don’t make warranties about the performance of their (or their supply-chain’s) services and/or competence.

Supply chain risk

A ‘Client’ can’t subcontract out of its Duty Holder obligations, and whilst a Principal Designer / Principal Contractor is permitted to sub-contract out certain aspects of their role, statutory liability would remain with them. In respect of any sub-contracted services, firms should always have supply chain risk management in mind. A firm might feel comfortable that they are adhering to all necessary regulations, but they would also have contractual responsibility for any parties to whom they subcontract services. In the event of a problem, a PII claim would likely be made against them in the first instance, even if it was their sub-contractor (alleged to be) at fault. There is no guarantee that any recovery (partial or full) would be made off a sub-contractor ultimately deemed to be at fault, especially if they are no longer in business. So, ensuring those firms are financially sound, carry sufficient PII insurance and are qualified, experienced, able and sufficiently resourced to undertake those services will always be critical.