The new post-Grenfell dutyholder regime could cause insurers to slash professional indemnity insurance (PII) coverage, a Construction Leadership Council (CLC) lead has warned.
Insurers may carve out more exclusions within PII coverage as new obligations for the principal contractor (PC) role create uncertainty over liability, insurance veteran Samantha Peat told Construction News’ CN Forecasting conference on Tuesday (19 November). Peat chairs the Construction Leadership Council’s professional indemnity insurance working group.
Referring to the surge in fire safety exclusions in PII coverage after Grenfell, she said: “My concern is that they will do that with the principal designer and principal contractor role. If [underwriters] say they’ll cover it, and then the claims start coming in, they’ll just say we’re not covering this anymore.”
The principal contractor role, which is now required on all construction projects, gained new duties under the 2022 Building Safety Act and 2023 Building Regulations amendments. They must ensure design and building work complies with Building Regulations and ensure the health and safety of workers and members of the public affected by the project. Breaching the role’s requirements may result in an unlimited fine.
Peat said: “What insurers don’t like is uncertainty – they like to know what they are covering.
“And so when you introduce a dutyholder, there is a reluctance on their part, sometimes, to provide cover if they don’t understand what the risk is.”
She added that construction PII is already an unattractive product for providers, having been identified as poor performing by a 2018 Lloyd’s review. “What we saw post-Grenfell in terms of premiums going up was going to happen anyway,” she said.
Peat identified two features of construction PII that make it a riskier prospect for underwriters.
Construction PII operates on a claims-made basis, which means that it covers any claim made during the period of coverage – regardless of when the breach occurred. Insurance firms still have large amounts of capital tied up in post-Grenfell cladding claims involving their clients, with little clarity as to how much they might have to contribute, Peat said.
Another problem is that the UK’s legal framework uses a principle known as ‘joint and several liability’. This means that where a claim is made against several parties in respect of the same harm, one of those companies may have to pay all the damages.
Peat added: “[Insurers] are not a charity. They are profit-making companies that need to make a profit for their shareholders.”
Last month, Peat’s CLC working group warned clients against making “onerous” amendments to standard contracts. The statement said contractors may risk “financial ruin” if clients added in too many obligations, which may not fall within the scope of their PII.
The CLC PII working group was set up in 2020, as premiums rocketed in tandem with the risk perception of cladding work after Grenfell. A CN investigation found that many PII providers had excluded fire safety from their coverage, while costs soared up to 1,500 per cent for some cladding firms.
Peat was speaking on a building safety panel at CN’s Forecasting conference, in which Building Safety Regulator deputy director Tim Galloway said his organisation would be “harder” on building control applications to tackle delays in determining submissions.
