Contractors and construction professionals face rising exposures and a new wave of cladding claims under post-Grenfell changes to UK building safety laws, according to Fenchurch Law. But some construction firms may struggle to recover losses from their insurers, the law firm warned.
Property owners, leasers, developers, construction firms and their insurers all face increased exposures and liabilities under the UK’s Building Safety Act 2022 (BSA), which expands the rights of residents in high-risk residential buildings. The BSA, due to be implemented during the next two years, will make it easier for owners and leaseholders to sue developers and contractors for defective building works, including retrospective claims for combustible external cladding.
The BSA is a major plank of government reforms in response to the fatal Grenfell Tower fire that was exacerbated by the building’s external cladding. The Grenfell fire, which is currently subject to a public inquiry, sparked a debate about fire safety regulation in the UK and who is liable for the cost of replacing defective cladding. Estimates put the cost of removing unsafe external cladding in the UK at some £50bn.
The BSA was heavily criticised by the construction industry, with some fearing it could lead to an avalanche of claims. The Construction Industry Council (CIC) warned of dire consequences and firms exiting the sector due to mounting liabilities and difficulties in obtaining insurance. Risk aversion within the insurance sector could see it “walk away” from construction, the CIC warned.
The BSA widens the scope of liability under the Defective Property Act (DPA) for developers, contractors and construction professionals, according to Fenchurch Law. The rule changes make recourse easier for property owners and leaseholders, while making it harder for developers, construction firms and manufacturers to avoid liability. The BSA also requires landlords to take reasonable steps to recover costs of remediation from third parties, including insurers.
Perhaps the biggest liability change introduced by the BSA, however, is an extension of the limitation period for claims made under the DPA, including a retrospective change in liability. The limitation period is to be extended retrospectively, so for work completed prior to the Act coming into force on 28 June, from six to 30 years. The limitation period was extended prospectively for work completed after 28 June, from six to 15 years.
According to Rob Goodship, associate partner at Fenchurch Law, the changes are likely to trigger a wave of claims against construction companies.
“The effect of [the retrospective change to the limitation period] is that there is likely to be a whole raft of claims that could not have previously been made from those with an interest in properties rendered unfit for habitation as a result of inadequate work, including the use of defective materials,” he said during a webinar.
Construction firms may also face new historical claims beyond cladding under the BSA’s change to the limitation periods, Goodship warned. “The Act is not only concerned with cladding claims, but any claim possible under the DPA. So, it’s a huge emerging liability for the construction industry and not just from a cladding perspective,” he said.
In the first court case to tackle the issue of combustible cladding since the Grenfell Tower fire – Martlet Homes Ltd v Mulalley – the judge ruled against the contractor, awarding the building’s owner approximately £8m in damages. The ruling in July has the potential to set a precedent in future combustible-cladding claims.
According to Goodship, contractors and construction professionals face a “huge wave of claims” under the BSA/DPA, for which they may have little or no insurance. Since the Grenfell fire, professional indemnity insurers have introduced exclusions, including blanket exclusions, more restrictive coverage, and write-backs that provide some restricted cover for cladding claims and sub-limits,” he said.
“Contractors and construction professionals will be looking to their insurers to cover them for these new claims but that is unlikely to be straightforward. From a professional indemnity perspective, focusing on cladding, current policies will most likely have a fire-safety cladding exclusion, many of which have been in place since the Grenfell tragedy, which may exclude some of these new claims,” said Goodship, whose firm exclusively represents insurance buyers.
“Policyholders may have made historical notifications to their PI policies where DPA claims are now possible, and they may say those earlier notifications trigger new claims. But no doubt, insurers will be challenging the validity of those notifications in order to manage their own exposure,” he said.
“For older policies it is likely to be difficult to show the policy is triggered, while cover under more recent policies is likely to be restricted,” he continued.
Contractors and construction professionals may find they have some cover under their public liability policies for new cladding claims, Goodship explained. But public liability insurance also contains exclusions and is unlikely to cover the cost of replacing defective cladding, he added. There may be cover for financial loss though, continued the lawyer.
The changes to the limitation periods for liability coincide with other drivers of construction industry claims. “The change comes alongside the pressure put on landlords and property owners to fund remedial works, which they will look to recover where possible,” said Goodship.