Grenfell Tower - Property and Liability Insurance Considerations
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Grenfell Tower - Property and Liability Insurance Considerations

Following the terrible fire at Grenfell Tower on 14 June 2017, the Government has announced a Public Inquiry which is being led by Sir Martin Moore-Bick.

For the terms of reference for the inquiry see the below link:

 https://www.gov.uk/government/publications/grenfell-tower-inquiry-terms-of-reference-published

 

Dame Judith Hackitt is chairing an Independent Review of Building Regulations and Fire Safety also set up following the Grenfell Tower tragedy. 

The interim report, issued in December 2017, see link below:

https://www.gov.uk/government/publications/independent-review-of-building-regulations-and-fire-safety-interim-report

 

The report found that:

  • a culture change is required, with the construction industry taking greater responsibility for what is built
  • the current system for ensuring fire safety in high-rise buildings is not fit for purpose
  • a clear, quick and effective route for residents to raise concerns and be listened to, must be created.

The Grenfell fire has reminded those responsible for fire detection/elimination/protection in high rise buildings that great care needs to be taken and appropriate safety checks conducted.

There are a number of insurance implications arising from the fire and BIBA’s Liability & Accident and Property Committees have debated and considered the following issues.

 

Property Insurance Issues

The Department for Communities and Local Government (DCLG) has requested that Local Authorities and Registered Social Landlords identify and record the number of properties above 18 metres high, including whether any panels used in new build or property refurbishment are a particular type of cladding made of aluminium composite materials (ACM). However, it has also been identified that ACM may also have been used in the construction of schools, NHS hospitals and universities and similar enquiries are being undertaken. It is also understood that ACM cladding may have been used in the construction of hotels, offices and other commercial and leisure sectors.

A number of issues have been raised following the fire, some of which may need to be considered when making a ‘Reasonable Search’ and ‘Fair Presentation of Risk’ of any property insurance as part of the new obligations under the Insurance Act. These include:

  • Adequacy of sums insured for Property policies. Not only the adequacy of the building sum insured, but also whether the cover for loss of rent and alternative accommodation is sufficient? The indemnity period will also need to be carefully considered.
  • The construction of the building (structural frame, external walls, internal walls, floors, roof) and the materials used not only in the original build but also materials attached to and forming part of the building (cladding etc).
  • What fire protections are in buildings? – fire alarms, sprinklers, service risers, fire doors etc. Is there a log/checklist of all fire safety equipment to identify condition and maintenance?
  • Refurbishment of properties – What additions/changes to the building have been made? E.g. extensions, new heating (do internal walls retain their integrity against fire spread?), what materials have been used in the course of refurbishment.
  • If cladding/insulation has been used what is the combustibility of the insulation material? There are five categories: Combustible, Fire Retardant, Approved Fire Retardant, Fire Resistant and Incombustible.  Any cladding/insulation will need to comply with the relevant Building Regulations and Standards applicable at the time of installation.
  • Fire risk assessments, protections and procedures. Fire risk assessments are required by the Regulatory Reform (Fire Safety) Order 2005 and virtually all those with control of non-domestic premises are required to ensure that a suitable and sufficient fire risk assessment is undertaken, and, in most cases, recorded.  This should be carried out by a responsible person who implements appropriate fire precautionary and protection measures along with maintaining a fire management plan.  The assessment may require review and change following any works undertaken.  Regular inspections by the building owners or agents are essential to maintain the integrity of physical and management standards.  Clear records should be maintained.

 

Liability Insurance

Legal liability has not yet been determined in the Grenfell Tower case. This is likely to take some considerable time due to:

  • the public inquiry
  • the number of potential claimants
  • potential cost – compensation to direct victims and substantial consequential losses, plus legal costs
  • the number of potential defendants (fridge manufacturer, resident of flat at source of fire, landlords, management company, local authority, developer, contractor, panel supplier)
  • HSE and Police investigations and potential prosecutions

 

Legal liability could arise in:

  • Negligence
  • Nuisance
  • Failure to warn
  • Breach of professional duty
  • Contract – breach of contract, contractual responsibility, collateral warranties, fitness for purpose, deleterious materials, pure economic loss etc.
  • Breach of statutory duty – health & safety regulations, building regulations
  • Criminal – HSE prosecutions, corporate manslaughter, gross negligence manslaughter

 

There may be many liability exposures that would need to be considered, including:

  • local authority/property owner/landlord
  • management company
  • architect design liability
  • main contractor and sub-contractor
  • cladding manufacturer/supplier
  • manufacturer of the domestic appliance that caught fire
  • who makes the decisions regarding works/refurbishments

 

The question of limits of indemnity under public liability, employers’ liability, professional indemnity and directors’ & officers’ policies will need to be considered, including:

  • Nature of the property and use
  • The potential for multiple injuries and deaths (especially in light of the recent change to the Discount Rate for personal injury compensation)
  • Consideration of significant property damage.
  • Consideration of other losses including: alternative accommodation; damage to adjacent property in the area; denial of access.

 

Please see BIBA’s PI Volume 6 ‘Managing under-insurance’ which discusses special considerations for liability limits. Follow the link below: 

https://view.publitas.com/biba/professional-indemnity-volume-6-managing-under-insurance-a-guide-to-prevention/page/1

 

Other liability insurance considerations may include –

  • Products liability – are there efficacy exclusions in products liability policies of suppliers/installers of fire protection and suppression equipment?
  • Remedial costs in relation to the costs of replacing cladding on other buildings.
  • Has the relevant limitation period for remedial works expired?

 

Professional indemnity insurance for consultants and contractors involved in cladding work has come under the spotlight –

  • PI insurers’ renewal questionnaires are more detailed, sometimes seeking information on work involving cladding going back as far as 15 years.
  • Premiums and excesses are increasing for consultants and contractors involved in cladding. PI cover is being restricted in some cases to an aggregate limit of indemnity rather than each and every claim. We further understand that some insurers are applying prior work exclusions in relation to cladding work.
  • Block notifications is a delicate issue. There is case history to the effect that if a broker fails to raise the issue with a client when there is an arguable case to make such a notification then the broker could be liable (see Ocean Finance & Mortgages Ltd v Oval Insurance Broking Ltd).
  • As ever, it depends on the PI policy wording as to whether a notification of circumstance should be made to insurers. The claims conditions and definition of a claim should be reviewed.

 

What next?

We are keeping a close eye on the changes to legislation likely to to come to affect as a result of Grenfell and other high profile disasters in recent history. Please continue to read our newsletters in order to receive the latest updates.We will of course make our clients aware of anything that they need to consider as a result. If you have any further questions regarding this article, please do not hesitate to contact us.

01789 761 660

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