Fenchurch Law

Mind the Gap: Owners Corporation 1 Plan No. PS 640567Y v Shangri‑La Construction Pty Ltd [2026] VSC 117

Introduction

A recent decision of the Supreme Court of Victoria poses an important question for the construction sector in particular: where statutory and/or strict liability regimes which concern actions taken by directors or officers are not covered by professional indemnity (“PI”) insurance, is directors’ and officers’ (“D&O”) insurance able to plug any gap in cover?

Background

Shangri‑La Construction Pty Ltd (“SCP”) was appointed to design and construct a residential development in Victoria, Australia. SCP’s Managing Director, Mr Naqebullah, recommended that the external façade incorporated expanded polystyrene (“EPS”) cladding, which was later determined to be non‑compliant with applicable building regulations. Following remediation works funded by the State of Victoria (the “State”) (similar to the Building Safety Fund here in England & Wales), it pursued an action to recover such costs under Section 137F of the Building Act 1993 (Vic) (“Section 137F”), which was enacted in 2019. Section 137F is a strict liability provision which grants the State rights of subrogation against officers and/ or directors of contractors for the cost of cladding rectification work.

Pursuant to Section 137F, the State obtained summary judgment against Mr Naqebullah in the sum of approximately $3.17 million plus interest. Mr Naqebullah then sought indemnity under two consecutive “claims made and notified” professional indemnity policies taken out by SCP (the “Policies”).

Key questions

The Court was required to determine:

1. Whether Mr Naqebullah was an “Insured” under the Policies;
2. Whether a “Claim” had been made and notified within the relevant periods of insurance; and
3. Whether the liability fell within the insuring clause, which responded to civil liability incurred in the conduct of the insured’s professional business.

Judgment

Insured status

The Court held that Mr Naqebullah was an insured person under the Policies. Although he was not named individually on the certificates of insurance, the policy documents, read as a whole (including the proposal forms), demonstrated that directors were intended to fall within the class of insureds.

Claims made and notified

The Policies were written on a strict claims made and notified basis. However, the State’s ability claim under Section 137F did not come into force until after the expiry of the Policies. As a result, and unsurprisingly, the Section 137F claim against Mr Naqebullah could not have been made during the relevant periods of insurance. Moreover, attempts to treat earlier proceedings involving SCP as the relevant claim, or to attach the Section 137F claim back to earlier notifications, were rejected as undermining the commercial purpose of claims made insurance.

Scope of the professional indemnity cover

Most interestingly from our perspective, the Court found that the liability imposed on Mr Naqebullah was not incurred in the conduct of professional business. “Professional Business” was defined by the Policies as design, including advice in relation to design in accordance with all relevant building, construction or engineering codes and standards.

It was Mr Naqebullah’s case that providing services as a registered building practitioner in drafting a specification under a design and construct contract constituted the provision of professional services of a skilful character as contemplated by the Policies.

However, no element of the State’s case against Mr Naqebullah involved provision of any design, specification or advice as contemplated by the “Professional Business” definition under the Policies, nor did Mr Naqebullah’s liability to the State depend in any way upon breach of a professional duty by him or by SCP. Instead, his liability arose solely (and strictly) under Section 137F as he was an officer of SCP at the time of the non‑compliant work.

Analysis and implications

This decision highlights an area of tension between statutory and/or strict liability regimes and professional indemnity insurance. Even where the factual background involves professional services, insurers will inevitably look closely at the legal basis on which liability is imposed. Where that basis arises in statute and/or by strict liability, PI insurance policies may not respond.

When that liability concerns actions taken by directors or officers, the question then becomes whether D&O insurance is able to plug any gap in cover.

Whilst there are no analogous strict liabilities directly arising from the design or construction of buildings here in England & Wales, sections 40 and 161 of the Building Safety Act 2022 (the “BSA”) did introduce offences for officers who commit, consent to or negligently fail to prevent breaches of the Building Act 1984 (including contravention of the Building Regulations) and breaches of Part 2 or Part 4 of the BSA (including obstructing building control or failing to manage Higher Risk Buildings).

While liability imposed on an individual by virtue of holding office might ordinarily be expected to fall within the scope of D&O insurance, such policies often contain broad professional services exclusions. This creates a real risk that policyholders may find themselves without cover under either policy.

Conclusion

For policyholders and brokers, the decision underlines the importance of reviewing PI and D&O cover together, rather than in isolation. Particular attention should be paid to the scope of the professional services definition and insuring clause alongside the breadth of professional services exclusions in D&O policies, and the extent to which programmes are designed to respond coherently to building safety liabilities.

Authors

Abigail Smith, Associate

Pawinder Manak, Trainee Solicitor

by Fenchurch Law

The Grenfell & Champlain Towers: Risk Management Considerations in the Wake of Catastrophic Loss — A UK/US Comparison

1. Introduction

As part of the multinational collaborative relationship between Saxe Doernberger & Vita, P.C. and Fenchurch Law, we continually find ourselves in conversations about the sometimes subtle but sometimes drastic differences between risk management and coverage considerations from one country to the next. These differences are often highlighted by the fallout from large catastrophic losses that are widely publicized and illuminate sometimes widespread risks and perils that many others may be facing in the coming years.

The response of governments and their subdivisions to the needs of victims and/or commercial parties, and insurance markets’ evaluation of and reactions to catastrophic losses vary widely from country to country and jurisdiction. In this article, we discuss these responses and reactions in the cases of the Grenfell Tower Fire in London, England, and the Champlain Tower collapse in Surfside, Florida, within the United States. These two widely publicized losses involved different risk management and insurance considerations based on where they occurred. They also saw substantially different government responses and raised varied questions about what the next steps are for their respective commercial and insurance markets.

This comparison highlights the variation in considerations that policyholders face when examining risks across national and international operations. What to expect and what to look out for depends heavily on where you do business, and we are excited to continue these conversations to support policyholders across the globe.

Whilst our joint analysis has identified some significant differences in the risk and insurance landscape for contractors and construction professionals operating in these key markets (largely, and perhaps unsurprisingly, driven by key regulatory and legislative differences), there are common themes including the effect of public response and awareness, insurance market reactions and risk management considerations.

2. The Grenfell Tower Fire

A. Background

On 14 June 2017, a catastrophic fire ripped through a high-rise residential building in Central London known as Grenfell Tower, resulting in the tragic deaths of 72 people. Prior to the fire, Grenfell Tower had undergone significant refurbishment, which included new windows and a rainscreen cladding system being fixed to the outside of the reinforced concrete structure. Many of the materials and components used were either combustible or not of limited combustibility, which is thought to have significantly contributed to the intensity of the fire and the speed with which it spread around the 24-storey structure.

The fire has had a seismic impact on owners, leaseholders, and tenants of buildings with unsafe cladding, many of which were, and continue to be, faced with huge challenges in relation to the cost of remediation and the interim fire safety measures.

The tragedy has also had a significant effect on those operating in the construction industry, including the availability and applicability of their insurance when faced with claims from parties seeking to fund the cost of removing and replacing unsafe cladding. That work of itself has, in some instances, revealed other defects, in turn leading to increased claims against those involved in the design and construction of buildings.

B. Immediate Implications

The focus after the tragedy was rightly to try and identify the cause of such an intense fire, with the refurbishment being the obvious starting point. The UK Government commissioned the Building Research Establishment to undertake a series of tests on aluminium composite material (“ACM”) panels in combination with a number of other common external wall components in order to test compliance with the Building Regulations. Only one of the tests passed, which included mineral wool insulation. Although the initial focus was on ACM, subsequent tests and investigations revealed similar non-compliances caused by the use of non-ACM materials.

The Government also immediately announced a Public Inquiry into the tragedy, which began hearing evidence in September 2017, leading to the Phase One report (dealing with the events on the night of the tragedy) being issued in October 2019, followed by Phase Two (concerned with the refurbishment of the tower) in September 2024. To date, the criminal and civil proceedings in relation to the Grenfell Tower itself remain ongoing, although that is most likely due to those proceedings needing to await the conclusions from the Inquiry.

External wall systems similar to those used on Grenfell Tower (both ACM and non-ACM) had been commonly used in both residential and commercial developments for many years (if not decades). Given the sudden attention which these systems were now receiving as a result of the public outcry following the tragedy, many involved in the design and construction of buildings using similar systems were facing immediate requests for information on the materials used and the threat of claims if the buildings were unsafe and/ or non-compliant with the Building Regulations.

C. Insurance Implications

Non-compliant cladding systems present an issue in relation to first-party insurance coverage, which is almost exclusively by damage. Absent a definition in the policy, damage will likely be determined by reference to common law authority, which is concerned with a physical change that has impaired the use or value of the insured property. Non-compliant cladding has not undergone a physical change – its condition has remained stable, and its unwanted quality comes from its non-compliance, which renders it defective (not damaged). Policyholders therefore had to look to other sources for insurance cover, including latent defect policies which provide first-party cover absent damage if there is a present or imminent danger.

From a liability perspective, contractors and construction professionals had little choice but to consider the nature and extent of their exposure to claims and their coverage for professional negligence claims, particularly in view of more restrictive cover being introduced on policy renewal, many of which included full or partial exclusions for fire safety and/ or cladding claims. Some policyholders were therefore placed in an unenviable position – either notify circumstances which could give rise to claims to an expiring policy knowing those notifications were likely to be challenged, or face the risk of any claims being excluded from subsequent policies as a result of either fire safety and/ pr cladding exclusions or known or prior circumstance exclusions.

In practice, many policyholders made ‘block notifications’ to their professional indemnity insurance policies in an attempt to salvage some insurance cover in the face of restrictive cover on renewal. Whilst relatively unusual prior to Grenfell, block notifications enable a policyholder to, as the name suggests, notify a large number of related circumstances at one time, although the validity of each will be assessed individually. Although there is a practical benefit to a policyholder in notifying circumstances in this way, it does attract suggestions from insurers that the subsequent claims aggregate as they are related (given that they lent themselves to a block notification).

D. Ensuing Litigation and Government Reactions

In the years that followed the Grenfell tragedy, a wave of claims were brought against contractors and construction professionals in relation to allegedly defective and/ or unsafe buildings. Solomonic reported in September 2024 that over 100 such claims were issued in the Technology & Construction Court since the Grenfell fire[1], although many more are likely to be in the pre-action phase. Policyholders were typically faced with challenges to cover under policies they might expect to indemnify them in respect of liability arising from such claims for numerous reasons, including that:

a) the validity of the notification (block or otherwise) – either that by reference to the applicable threshold and/ or requirements, notifications were made too soon or too late;

b) the claims arose from known circumstances if they were notified to the policy, which renewed in the months following the Grenfell tragedy;

c) some or all of the alleged issues were caused by poor workmanship, as opposed to design or specified, such that the claim was excluded; and/ or

d) even if the policy did respond, then any claims would aggregate as they arose from the same originating cause or the same act or series of acts.

To date, there have not been any significant reported judgments concerning disputed insurance cover for cladding or fire safety claims, although that is potentially a result of policyholders compromising claims when settling the underlying liability claim, or coverage claims being resolved by arbitration (which is a confidential dispute resolution process).

More generally, the necessary work to remove unsafe cladding / external wall systems has led to the discovery of wider issues, including internal fire safety defects (such as poor compartmentation or fire stopping) and structural defects (which were hidden behind external wall systems). These have been the subject of numerous and significant claims of their own right, including BDW Trading Limited’s claim against structural engineer, URS (now part of AECOM), which went all the way to the Supreme Court in 2025.

The drive to remediate unsafe buildings (with reports suggesting that 4,630 residential buildings over 11m still have unsafe cladding[2]) resulted in both the Government having to introduce public funding for those works, including the Building Safety Fund and the Developer Remediation Contract which required developers to remediate unsafe residential buildings or face being excluded from development work or denied building control approval on new developments.

However, notwithstanding the positive action taken by the Government, there were calls to improve the rights and remedies of affected owners, leaseholders, and tenants, as well as avoid repeated instances of systemic failures going forward – both of which were purposes of the Building Safety Act 2022.

E. The Building Safety Act 2022

The first formal step towards legislative change as a result of the Grenfell tragedy was the ‘Building a Safer Future’ publication in June 2019, although it took until 28 June 2022 for the Building Safety Act 2022 (“BSA”) to be implemented. The BSA introduced a raft of retrospective and prospective changes to building safety legislation, with the most significant from an insurance coverage perspective being:

a) Extension of the retrospective limitation period for claims under the Defective Premises Act 1972 (“DPA”) from six years to thirty years (fifteen years prospectively); and

b) The implementation of new remedies in the form of Remediation Contribution Orders (“RCOs”) and Building Liability Orders (“BLOs”) which, in prescribed circumstances, can ‘pierce the corporate veil’ and pass liability for the cost of remediating unsafe buildings from the original contracting party to its ‘associates’

Whilst it typically takes longer for the insurance coverage implications of such significant legislative changes to appear compared with the often more immediate impact on underlying liability claims, the following are already presenting issues in practice:

a) Given the surge in claims being made under the DPA, insurers are adopting a more restrictive approach to coverage under PI policies, including arguing that the duty under the DPA is strict and therefore does not trigger the reasonable skill and care requirement of most PI insuring clauses;

b) That liabilities arising from RCOs or BLOs are similarly uninsured as the act, error or omission giving rise to the liability is that of the associated entity, not the RCO or BLO defendant; and

c) That in any event, any claims which are now available pursuant to the BSA, arise from known or prior circumstances (and are therefore excluded) and/ or do not attach to any existing notifications in the years following the Grenfell tragedy.

These disputes are likely to take many years to resolve, although it seems inevitable that policyholders facing these new claims/ remedies will have little choice but to pursue their insurers given the sums at stake.

3. The Champlain Towers South Collapse

A. Background

In the middle of the night on June 24, 2021, a twelve-story beachfront condominium tower called Champlain Towers South in the Miami suburb of Surfside partially collapsed, killing nearly one hundred people and injuring almost a dozen more. An effort to recover survivors of the collapse began in earnest and continued through late July. Many people had to be rescued from the un-collapsed portion of the building, but only four people were rescued from the building’s rubble, and only three of them ultimately survived.

Champlain Towers South was originally built in the early 1980s, along with two other towers completed in the late 80s and early 90s. In the days leading up to the collapse, emerging cracks and other indications of structural stress were observed, including water leaking into the underground parking garage from an area that had been the site of many cracks and repairs over the years. One resident reported that minutes before the condominium tower fell, the pool deck and street-level parking collapsed into the underground garage.

The U.S. National Institute of Standards and Technology (“NIST”) assigned a team of scientists and engineers to investigate the cause or causes of the collapse, and their work continues to this day. Preliminary findings in 2021 indicated the collapse started in the pool deck rather than in the tower itself. NIST’s subsequent years of investigation determined that the collapse likely started in a pool deck slab-column connection and then progressed through the condominium tower. Their reports also indicate that there were indications of the building’s distress that were visible in the weeks before the partial collapse.

B. Litigation, Investigation and Government Action

Almost immediately, a lawsuit on behalf of the residents of the building and their survivors was brought against the Champlain Towers South Condominium Association’s board in the local trial court. Shortly thereafter, the court appointed class counsel for separate groups of those injured or killed in the collapse, survivors, and former residents. Subsequently, numerous other defendants that were involved in development, maintenance, management, security, or repairs for the tower, as well as their insurers, were added to the suit.

Just before the one-year anniversary of the collapse, the named defendants, as well as some unnamed defendants, and their insurers reached a $1.02 billion settlement with the plaintiffs in the class action. Despite the ultimate cause of the collapse being unknown, nearly half of the settlement came from a single company and its insurers, in relation to an on-duty security guard not triggering a building-wide alarm before exiting the building. Subsequent investigations into the causes of the collapse also raised concerns about significant deferred maintenance of the structure’s concrete components, waterproofing, saltwater corrosion of exposed rebar, inadequate original construction, impacts of construction at an adjacent site, and years of subsidence in the area.

Government reactions to the collapse have been focused locally and regionally, rather than nationally. There are hundreds of high-rise condominiums with thousands of units like those in the Champlain Towers all across Florida. In the wake of the collapse, Florida passed condominium reform legislation creating a state-wide inspection program for condo buildings taller than three stories. Buildings will go through a milestone inspection certification process upon reaching thirty years of age, or twenty-five if they are located within three miles of the coast. They will be inspected again every ten years afterward. Inspection records will be made public, and condominium associations will not be able to waive structural maintenance fund reserve requirements. That statute was later amended to give the local authorities discretion on whether to inspect at 25 or 30 years.

C. Insurance Implications

On the first party side, there is no real dispute that there was physical loss or damage to the Champlain Towers, but common issues in the property insurance markets are worth noting. Collapse has been a peril of focus for many years, and policies vary widely on whether they cover collapse, whether collapse is limited to certain causes, or whether it is subject to lower sublimits. Wear and tear, inherent vice, subsidence, or exclusions related to defective construction can also be problematic in situations like the Champlain Tower collapse. Undoubtedly, we will see more restrictive variations in these terms emerging as insurance markets react to the risks highlighted by this tragedy. Lenders, property owners, and developers must keep a keen eye on the markets in light of their portfolios’ risk profile to ensure buildings are properly underwritten.

In terms of liability, the collapse implicated a wide swath of operations, from property management and security to maintenance, professional consulting and improvements, and all of the insurance underwriting those operations. Through their association by management control, maintenance or upkeep operations, security services, or otherwise, numerous companies and their insurers were brought into the suits seeking damages caused by the tower’s collapse. Those managing or providing services at the site, or who performed maintenance or construction at the site, would rely on commercial general liability as the primary source of contribution. Any professional service providers, including architects or engineers that might have been involved, were also relying on professional errors and omissions liability insurance. The condominium’s board may also have been relying on errors and omissions coverage for decisions associated with allegedly deferred maintenance.

Although a swift settlement was reached in this case, there are some common and emerging issues in liability insurance that are worth highlighting. One of the most concerning is the market’s creeping limitations on completed operations coverage. Exclusions have started to pop up in liability insurance for work performed before the current policy period, despite no injury or damage ever occurring before the current policy period. So, for example, assume a waterproofing contractor worked at Champlain Towers two years before the collapse. If their insurance in place at the time of the collapse had an exclusion in it for work performed during a previous policy period, the insurance in place at the time of the collapse would not respond. Nor would the policy in place at the time of the work respond, because liability insurance typically requires bodily injury or property damage that did not occur until the collapse itself.

Over the years, we have seen incidents like this driving subtle changes in the market that do not get scrutinized until a loss has occurred and it is already too late. Given the jurisdictional and situational variability in the U.S., commercial parties must take a proactive approach to insurance placement and renewal to ensure they are keeping up with market shifts.

D. Broader Legislative and Commercial Considerations

Unsurprisingly, insurance premiums for condominiums in the area have increased by orders of magnitude since the collapse. Unlike the UK’s response of ensuring remedies for aggrieved survivors, Florida’s responses to increased insurance costs have been “tort reform,” with major legislation coming in the form of HB 837 in 2023. Amongst other things, the bill implemented a modified negligence system, reduced the statute of limitations for negligence claims, eliminated one-way attorney fees for bad faith in many cases, and placed other limitations on attorney fees as well as damages evidence. Insurers have benefited heavily from these reforms, and Florida touts the bill as a tremendous success in their favor.

In the United States, each state has its own scheme of statutes of limitations and statutes of repose. The former being the amount of time after which a claim can no longer be brought by an injured party. The latter being the amount of time after construction operations are completed beyond which construction defect claims cannot long be brought by anyone. In Florida, the statute of repose is seven years from, amongst other things, the date of a certificate of occupancy or completion, or when construction is abandoned. As with the reduced remedies under Florida’s “tort reform” bill, the statute of repose was actually shortened from ten years to seven.

Also, unlike the UK, there is no national corollary to the Building Safety Act, and public funding for proactive remediation of potential risks like those associated with the Champlain Tower collapse is rare. Sometimes, federal disaster relief is granted for specific catastrophes, but not since the implementation of superfund site support has the US seen proactive national support for risk remediation. Further, the general rules regarding corporate immunity and veil piercing, along with statutes of repose, can shield entities historically affiliated with a building like Champlain Towers if they are removed in time or association. The localized administrative requirements issued by Florida in response with respect to building inspections were the only meaningful government response to the tragedy. In the U.S., states and local governments vary significantly in how they balance the interests of builders, property owners or managers, and tenants or buyers.

Without comprehensive remedies to address the serious considerations raised by an event like the collapse, the focus has been on commercial reactions. Property owners and developers are taking stock of their profiles and reassessing risks based on the lessons learned. The operations and decision-making of property managers and boards with respect to needed and deferred maintenance of older buildings are getting a second look in light of known issues at Champlain before the collapse. Certainly, with respect to older concrete buildings near the ocean, contractors engaged in maintenance and upkeep operations are also highlighting the implications of the Champlain collapse in their transactions with owners. The collapse likely impacts the value and risk associated with older buildings, pushing owner and equity groups toward new construction generally, whereas the Grenfell issue is easier to identify as a prospective buyer.

However, commercial entities should also be looking out for changes in the insurance markets. As with other large-scale historic losses, such as Exterior Insulation and Finish Systems, we have seen changing terms creeping into policy terms. New forms and endorsements related to concrete, subsidence, wear and tear, or other similar items should get a second look in light of a company’s portfolio and risk profile. Without a close eye on the market, new exclusions have a habit of popping up when it is already too late.

4. Observations and Conclusions

While remedies available and governmental responses to catastrophes like Grenfell and Champlain vary considerably from country of jurisdiction to another, some risk management considerations are more normalized.

One significant difference we see in Grenfell as compared with Champlain is the relative speed at which survivors of the Champlain collapse settled their claims as compared those of the Grenfell catastrophe. Some observers noted that the Champlain suits settled relatively quickly due to the potential publicity associated with delaying compensation for the victims. This is in part a function of the ability of survivors to bring and establish a class action so quickly and verdict escalation in the U.S., with many potential parties at risk, each with limited insurance and assets to contribute and not wanting to get left out of a settlement. Compensation for Grenfell survivors will take longer, arguably because the criminal and civil proceedings needed to wait for the Public Inquiry to conclude. On the other hand, the UK saw national governmental implementation of new remedies in response to Grenfell, where no such national response occurred in the U.S. after Champlain. Instead, Florida’s pressure from the insurance markets actually eroded policyholder remedies.

In part, the sheer size of the U.S., but also its more recent historical political tendencies, make it unsurprising that national remedies in response to a tragedy like Champlain would be unlikely. As such, changes in remedies tend to be more localized, though still influenced by large commercial interests lobbying power. Additionally, proactive risk management is much more of a commercial exercise rather than adjusting to legal changes. Policyholders in the U.S. benefit substantially from robust reviews and vigorous engagement in the insurance procurement and contractual risk management processes. This should include keeping an eye on insurance markets for reactions to publicized risks and addressing these risks up front through business practices.

By comparison, the national remedies in response to Grenfell in the UK may have taken time to implement, but their impact has been widespread both in terms of the rights and remedies of those effected by unsafe cladding in the built environment, as well as the building safety regime and regulations for new buildings. Those changes have dramatically increased the liability landscape for contractors and construction professionals, inevitably resulting in increased insurance coverage disputes in relation to historic projects. However, at the same time, those measures seek to reduce the building safety risks in future projects, which should, in turn, lead to improved design, procurement, and risk management measures and, ultimately, reduce the liability exposures of those operating in the construction industry.

Despite the jurisdictional differences, there are some risk management and insurance considerations that will be more universal. Policyholders must still pay close attention to managing retrospective dates, aggregation clauses, and notification provisions in claims and risk management practices. Policyholders should also take stock of statutes of limitations or repose in jurisdictions where they have operations, and trends in completed work or continuing damage terms in their insurance markets to stay current on best practices.

Authors

Rob Goodship, Partner Fenchurch Law

Eric Clarkson, Senior Associate, SDV Law

[1] 100+ cladding and fire safety claims seven years on since Grenfell Tower fire — Solomonic

[2] Housing block residents still caught in cladding crisis after Grenfell tower fire | The Independent

by Fenchurch Law

New Guidance on the Scope of RCOs: The Upper Tribunal’s Judgment in Edgewater (Stevenage) Limited and Others v Grey GR Limited Partnership

Last week, the Upper Tribunal (Lands Chamber) (“UT”) handed down its judgment in a highly-anticipated appeal against a swathe of Remediation Contribution Orders (“RCOs”), providing further guidance on the scope of section 124 of the Building Safety Act 2022 (“BSA”).

In dismissing the appeal on all grounds, Mr Justice Edwin Johnson confirmed that:

1. The First-tier Tribunal (“FTT”) have jurisdiction to make RCOs against multiple parties on a joint and several basis, provided that it is just and equitable to do so (which, he was careful to note, will be a “very fact sensitive exercise”);
2. The factors which the FTT may take into account when considering whether it is just and equitable to make the order under section 124(1) of the BSA are “very wide” and are not capable of exhaustion;
3. Whilst the initial burden is on the applicant to put forward a case as to why it is just and equitable to award an RCO, the evidential burden is ultimately shared between the parties;
4. Reference to a building safety risk in section 120(5) of the BSA is a reference to “any risk” which satisfies the conditions of the BSA, and is not a reference to risks above a particular level; and
5. The question of whether remedial costs are reasonable will depend on a number of factors, including any reliance on expert reports as to the scope of the works and the time pressure that stakeholders are under to remediate continuing risks to residents.

We highlight our key takeaways for those operating in the construction and property sectors below.

Background to the appeal

The appeal relates to the development of Vista Tower, a residential high-rise building in Stevenage, the freehold of which was sold to the Respondent, Grey GR Limited Partnership (“Grey”) in 2018.

Soon after, post-Grenfell investigations led to the discovery of significant fire safety defects in the building’s external walls and a Remediation Order was issued requiring Grey to remedy those defects by 9 September 2025.

On 24 January 2025, Grey was granted RCOs against 76 corporate entities associated with the developer, Edgewater (Stevenage) Limited (the “Appellants”). Controversially, those RCOs declared each of the 76 Appellants jointly and severally liable for the total sum payable, which was in excess of £13 million.

The RCOs were appealed on a number of grounds.

Joint and several liability for RCOs

The first ground of appeal concerned whether the FTT had the jurisdiction to issue an RCO on a joint and several basis.

The Appellants, in arguing that it did not, relied on the fact that section 124(2) of the BSA describes an RCO as an order against “a specified body corporate or partnership” in the singular, rather than in the plural. In other words, the Appellants said that whilst it is open to the FTT to make a series of orders against different entities, it cannot impose a joint liability under the same order.

Interestingly, in parallel with the RCO application, Grey has commenced proceedings in the High Court (Technology and Construction Court), against the developer and two other Appellants, for a Building Liability Order (“BLO”) pursuant to section 130 of the BSA. Those proceedings have not yet come to trial, but the Appellants’ argument as to the scope of the wording in section 124(2) lead to an interesting analysis of the distinction between RCOs and BLOs.

The UT confirmed that section 130 has a different jurisdiction to section 124, and works in a different way. Section 130 applies where a body corporate has a liability under (a) the Defective Premises Act 1972 or section 38 of the Building Act 1984, or (b) as a result of a building safety risk, and is “fairly rigid in its operation”: the liability to which the original body is subject can be made transmissible to associated parties.

In contrast, under section 124 RCOs are “more flexible and open ended”: it is for the FTT to decide what amount should be paid, and by whom, and on what basis.

Ultimately, Mr Justice Johnson held that the Appellants’ singular interpretation of section 124(2) was too narrow, identifying no reason why it could not be read as a plural. Most significantly, however, he identified an obvious problem with enforcement where one or more respondent is impecunious:

“If one then assumes a situation, which will not be uncommon, where some of the respondents are or may be unable to pay, the applicant party or parties will be left with something resembling a colander, in terms of their ability to recover the total sum ordered to be paid.”

In that scenario, where an applicant is prevented from obtaining the necessary funds for remediation, the statutory purpose of the BSA is clearly frustrated. For that reason, the UT has held that the FTT does have the power to make joint and several RCOs, noting that it will not be the starting position in every case, and that it must carefully consider whether it is just and equitable to do so (which is likely to be a “very fact sensitive exercise”).

Notably, the Appellants also argued that their inability to seek contributions from others in FTT proceedings (pursuant to the Civil Liability (Contribution) Act 1978) was another reason why joint and several liability should not be imposed. However, the UT rejected that argument on the basis that Parliament had intended not to concern itself with the question of contribution in relation to RCOs (but presumably had done so in relation to BLOs, which are pursued via court proceedings) and, in any event, the issue of apportionment/contribution could be dealt with as part of the just and equitable analysis, where circumstances required.

The “just and equitable” test

The Appellants’ secondary position was that it was not just and equitable to grant an RCO as some of the Appellants did not participate in the development, nor profit from it.

The FTT had considered the very limited evidence provided by the Appellants in relation to their corporate structure, and had found that they were part of a “fluid, disorganised and blurred network” which, rather than being financially separate, most likely had a tendency to take from whichever company had money when it was needed by another. The Appellants’ evidence on this point did not impress the UT, with Mr Justice Johnson describing it as “incomplete and unsatisfactory”, a factor which appears to have weighed heavily on him when considering the grounds of appeal.

In rejecting the argument that it was not just or equitable for the FTT to award the RCO on a joint and several basis, Mr Justice Johnson confirmed that the FTT’s discretion is “very wide” and that, in drafting section 124(1), Parliament had chosen not to list or limit the factors to be taken into account. He remarked that, if he were to try and list the factors on which the FTT might rely, he “would be at risk of committing the basic error of attempting to re-write Section 124(1)”.

Mr Justice Johnson also highlighted that, whilst the initial burden is on an applicant to put forward its case as to why it is just and equitable to make an RCO, that burden is not to be overstated, and it is for a respondent to put its case in response.

The meaning of “building safety risk” in section 120(5) of the BSA

One area in which the UT disagreed with the FTT was the meaning of “building safety risk” under section 120(5) of the BSA.

The FTT had defined a “building safety risk” restrictively, as any risk which exceeded the “low” or tolerable category used in PAS9980 assessments. Mr Justice Johnson was careful to correct that interpretation however, advising that section 120(5) “means what it says”.

In other words, it does not refer to any particular level of risk and refers instead to any risk which is captured by the BSA. If Parliament had intended to refer to risk at a particular level, it would have done so (as it had in other parts of the legislation). As no particular level of risk had been referenced in section 120, it was not for the FTT to rewrite the BSA.

Whilst not mentioned in the judgment, that analysis is consistent with the FTT’s recent decision of 6 January 2026 in Canary Riverside Estate (LON/00BG/BSA/2024/0005 LON/00BG/BSB/2024/009) which held that “any risk” of fire spread or structural collapse, however small, is enough to constitute a building safety risk under section 120.

The reasonableness of remedial costs

Finally, the Appellants challenged the reasonableness of one aspect of the costs incurred. Namely, the removal of combustible foam insulation from cavity walls.

Expert witnesses had agreed that, from a purely technical perspective, it had been disproportionate to remove the foam altogether, and a cheaper and simpler solution would have been to leave it in place with the addition of a cavity barrier as effective fire stopping.

In considering the reasonableness of the works, the FTT had placed “significant weight” on the agreement of the experts, but had also considered other factors that may have affected the scope of the works, including the need to implement the remedial scheme quickly in order to minimise the continuing risk to residents living in unsafe conditions, and the fact that Grey’s PAS9980 report had concluded that the foam insulation was “high risk” and needed to be removed.

The Upper Tribunal held that the costs incurred in removing the insulation were reasonable on the basis that it was not for Grey to question the advice of its fire engineers. Rather, it was reasonable for Grey to have relied upon the PAS9980 report and not to have revisited it later in order to reduce the scope of works, especially considering the time pressure it was under from the Secretary of State to minimise the continuing risk to residents.

Implications

The decision reads as a salutary tale to developers and their associates: not only does the FTT have jurisdiction to award RCOs on a joint and several basis, but that jurisdiction may extend to associates who have not participated in the development, or profited from it.

Clearly, that is more likely to be the case where (a) there is a question mark over whether the developer is financially able to meet its responsibility under the RCO, or (b) where respondents fail to provide a comprehensive explanation of corporate structures, or are part of financially fluid networks that cannot easily be isolated, all of which were significant factors in the UT’s reasoning.

Whether the Courts adopt the same analysis in relation to BLOs remains to be seen, although that is a significant possibility given how other UT judgments have been upheld by the Courts (for instance, Adriatic Land 5 Ltd v Long Leaseholders at Hippersley Point [2025] EWCA Civ 856).

Authors

Rob Goodship, Partner

Abigail Smith, Associate

by Fenchurch Law

Understanding Common Construction Exclusions: Lessons for brokers and policyholders

At our recent London Symposium, Daniel Robin, Deputy Managing Partner at Fenchurch Law hosted a session on the principles and importance of interpreting policy exclusions, both within construction, and across the insurance industry.

The session focused on four key areas: contractual liability exclusions, cladding and fire safety exclusions, exclusions relating to liquidated damages, and finally whether Section 11 Insurance Act can apply to Exclusions. It is often said that a policy is only as good as its exclusions, and a good proportion of coverage disputes turn on the correct interpretation of its exclusions. An understanding of these exclusions is essential for brokers to help their clients navigate and mitigate these risks to avoid being left uncovered.

1. Contractual liability exclusions managing assumed risks

Contractual liability exclusions are one of the most common exclusions in liability insurance. These clauses prevent insurers from covering risks that arise because the policyholder has assumed ‘obligations by contract’ through indemnities, guarantees, or warranties given to third parties.

Daniel clarified: “Insurers don’t generally want to be on the hook for liabilities that wouldn’t exist under common law or statute, or for promises that go beyond what’s legally required.”

When an insured professional takes on a larger liability than legally required, like guaranteeing an outcome, which is a larger promise than simply the duty to exercise reasonable skill and care, that liability may fall outside insurance cover.

Often claimants will go down the path of least resistance and pursue strict liability contractual breaches, which will leave policyholders having to prove that they would still have been liable under common law, usually for a breach of reasonable skill and care. However, building regulations or planning requirements can be amended retrospectively, sometimes making previous designs non-compliant, which could fall foul of a strict liability contractual provision, but not a breach of a reasonable skill and care.

To protect clients, brokers should scrutinise client contracts for any indemnities, guarantees, or warranties that extend liability beyond common law, and ensure the policy either aligns with those obligations, or that clients understand the potential uninsured exposures, or that the appropriate extensions to cover are purchased.

2. Cladding and fire safety exclusions

Cladding and fire safety exclusions are potentially the most topical and complex exclusions facing construction professionals. “One exclusion that is very common; insurers limit their liability for anything arising out of or connected to combustibility or fire protection.”

Fire safety exclusions are standard in many professional indemnity and construction all-risk policies, and they often appear deceptively simple. However, their breadth can leave significant coverage gaps.

Ultimately, interpretation can hinge on small wording distinctions. In an example, Daniel suggested that the exclusion might not apply where the issue concerned a lack of design detail rather than the choice of combustible material. The key was whether the clause referred to the form of materials used or the design or omission itself.

Daniel cautioned: “It’s a fine line, but the burden will always be on the insurer to prove that an exclusion applies. Still, brokers and insureds must be alert to the fact that even design omissions may fall foul of broadly drafted fire safety exclusions.”

Other types of cladding provisions, that limit the scope of cover but do not outright exclude it, can also raise challenges; where exclusions limit indemnity to the “cost of rectifying defective work,” policyholders may find that consequential losses or replacement costs are uninsured.

Brokers must therefore review policy wordings in line with regulatory developments to make clients aware of any gaps in coverage due to evolving building standards or retrospective safety amendments, and ensure that their policyholders are aware of what cover is in place.

3. Exclusions relating to damages: liquidated and consequential losses

Furthermore, insurance does not automatically follow the contract, particularly when contracts allocate risk through liquidated damages.

Liquidated damages clauses are a common feature of construction contracts, predefining the amount payable in the event of delay or breach, reflecting an agreed estimate of loss. However, insurers typically exclude these liabilities, viewing them as ‘punitive’ or ‘beyond the scope’ of compensatory loss.

“Insurers exclude them because they don’t allow for an assessment of actual loss and can operate more like penalties even though in reality they can limit the policyholders exposure that they would have in any event under other contractual provisions.”

Exclusion clauses still remain even when liquidated damages are a genuine pre-estimate of loss, meaning that policy coverage generally extends only to direct, compensatory loss, not to sums agreed pre contract.

The knowledge that delay or contractual penalty exposures are unlikely to be insured, even if they seem commercially reasonable, is essential to clients, and brokers should therefore always draft limitation of liability clauses that cover liquidated damage risks too.

4. Section 11 Insurance Act and exclusions

Daniel finally discussed an increasingly important area of insurance law: how S.11 Insurance Act 2015 interacts with policy exclusions and warranties.

Section 11 of the Act clarifies that an insurer cannot rely on a breach of warranty or condition precedent if the breach did not actually increase the risk of the loss that occurred. It is not yet tested in Court if this principle could also apply to exclusions, as it may “catch other types of contractual provisions such as conditions precedent or similar rules.” However, the wording of the Act, and the guidance notes suggest that it can apply to exclusions that impose an obligation on the policyholder as a pre-requisite to cover.

Brokers should therefore challenge insurers who decline claims by considering section 11; if the decline is purely technical and unrelated to the loss event, policyholders may still be entitled to claim cover.

Key lessons for brokers

Exclusion clauses are more than technicalities, they define the boundaries of insurance protection. For brokers, several practical lessons emerged: primarily, brokers must scrutinise contractual obligations and identify warranties, indemnities, or guarantees that extend liability beyond ‘duty of care’. It is also important to monitor regulatory shifts, and educate clients on the difference between compensatory damages (insurable) and liquidated or penalty-based damages (typically excluded).

Good communication is essential, not just with your client, but with experts from every industry involved. Effective dialogue between legal, technical, and insurance teams while forming a contract is one of the easiest ways to ensure risk cover is coherent and insurable. The interpretation of an exclusion depends not only on precise wording but also on how contracts are drafted, executed, and aligned with the policyholder’s duties.

Mastering these subtleties and leaning on the expertise of other teams is central to a broker’s role as an adviser. A proactive, detail-oriented approach, combining legal awareness with practical foresight, enables brokers to anticipate exclusions, bridge gaps, and ultimately keep their clients covered.

Daniel Robin is the Deputy Managing Partner at Fenchurch Law.

by Fenchurch Law