{"id":119,"date":"2018-05-21T00:00:00","date_gmt":"2018-05-20T23:00:00","guid":{"rendered":"https:\/\/fenchurchlaw.hostingsystems.co.uk\/uk\/blog\/2018\/05\/21\/insurance-cover-for-combustible-cladding\/"},"modified":"2024-08-21T17:02:12","modified_gmt":"2024-08-21T16:02:12","slug":"insurance-cover-for-combustible-cladding","status":"publish","type":"post","link":"https:\/\/fenchurchlaw.com\/en-uk\/insurance-cover-for-combustible-cladding\/","title":{"rendered":"Insurance Cover for Combustible Cladding"},"content":{"rendered":"

Insurance Cover for Combustible Cladding<\/u><\/strong><\/p>\n

Dame Judith Hackitt\u2019s Review of Building Regulations and Fire Safety recommends radical integrated change to the regulatory system covering high-rise and complex buildings, reflecting the realisation after Grenfell that previous oversight of the myriad activities and conflicting motivations involved in the construction of dwellings is not fit for purpose, to ensure safety of all occupants.<\/p>\n

Focus on delivery and preservation of high quality buildings is of crucial importance for society and stakeholders across the industry.\u00a0Challenges remain for many property owners and construction businesses affected by combustible cladding to existing structures, and insurers have a significant role to play in facilitating appropriate risk transfer and keeping buildings safe.<\/p>\n

Recommendations<\/u><\/p>\n

The\u00a0report<\/a>\u00a0highlights misunderstanding of ambiguous or inconsistent guidance, lack of clarity on roles and responsibilities, competence issues, lack of transparency in product testing and approval, and inadequate enforcement tools as key problems underpinning the failure, creating a \u2018race to the bottom\u2019 culture that does not promote good practice.\u00a0A clear model of risk ownership is proposed, held to account by a new Joint Competent Authority operating under a simpler and more effective regulatory framework, with audit trails of information throughout the life cycle of a building, from planning to occupation and maintenance.\u00a0A ban on inflammable cladding is due to be implemented later this year through changes to building regulations, but this will not apply retrospectively where materials have already been fitted.<\/p>\n

Remedial Costs<\/u><\/p>\n

Removal and replacement of unsafe cladding by councils and housing associations will be government funded at a cost of approximately \u00a3400\u00a0million.\u00a0Sajid Javid has said\u00a0that freeholders of private developments have a \u2018moral responsibility\u2019 to pay for rectification without levying the costs through service charges, affecting thousands of leaseholders in 130 apartment complexes in England that failed cladding tests since the tragedy in June 2017.\u00a0The allocation of responsibility in each case will depend on the leasehold arrangements and any latent defects insurance or housing warranty.<\/p>\n

The London Residential Property Tribunal ruled in March against residents of the Citiscape complex in Croydon over the management company\u2019s right to recover costs of replacement cladding and fire safety marshals, in circumstances where the leasehold repairing obligations and service charge covenants were co-extensive, before the developer and freeholder stepped in to cover remedial works of around \u00a32 million.\u00a0At the New Capital Quay development of 1,000 homes in Greenwich, completed in 2014, legal proceedings are reportedly underway between the management company and NHBC warranty provider, to determine liability for c.\u00a340 million costs of Grenfell-style cladding, certified as compliant with building regulations at the time of installation.<\/p>\n

LDI and New Home Warranties<\/u><\/p>\n

Latent defects insurance (LDI) can be obtained affording first party cover to both homeowners and developer from practical completion, to rectify damage or imminent damage arising from pre-existing defects. Insurers typically look to recover the loss from any negligent professional involved in the construction process.\u00a0LDI can avoid costs and delay associated with apportioning fault where previously accepted industry standards are exposed as inadequate (see also\u00a0MT Hojgaard)<\/em>, and protect against contractor insolvency risk.\u00a0Take up has increased in recent years, attracting investors and tenants.<\/p>\n

The Council of Mortgage Lenders requires a 10 year warranty or insurance policy to lend for new build residential homes.\u00a0Standard new home warranties provide cover for homeowners against actual or imminent damage caused by structural defects or breach of building regulations prior to completion, subject to initial 24 months\u2019 period where the developer is liable to rectify.\u00a0The \u2018immediacy\u2019 of damage arising from unsafe cladding will depend on evaluation of the surrounding circumstances including materials used, component parts of the structure, maintenance history and overall safety systems.<\/p>\n

Insurance claims may be especially important for owners of property blighted by combustible cladding given the difficulty in law of recovering pure economic loss (i.e. in the absence of physical damage) without a direct contractual relationship or collateral warranty with any party considered responsible for design, installation or certification of unsafe systems.<\/p>\n

Next Steps<\/u><\/p>\n

The first substantive hearings of the Grenfell Inquiry led by Sir Martin Moore-Bick commence today with tributes from friends and family of the 72 victims, as part of a fact-finding process to investigate how such a disaster could have occurred, alongside a police probe into alleged criminal offences.<\/p>\n

It is hoped that industry leadership will recognise and wholeheartedly support the cultural shift required, seizing the opportunity to restore public confidence and improve safety standards in the construction and maintenance of buildings for the benefit of all.<\/p>\n

The scope of insurance cover for cladding claims is likely be contentious given the scale of market exposure and policyholders should consider specialist advice on applicable wordings, to notify claims broadly and maximise potential recoveries.<\/p>\n

Amy Lacey<\/a> is a partner at Fenchurch Law<\/p>\n","protected":false},"excerpt":{"rendered":"

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