Most construction professionals will by now be aware of the problems caused by a hardening of the Professional Indemnity insurance market, highlighted by publications such as Architects Journal and New Civil Engineer.
Late 2018 saw further Insurer withdrawals from the market, including a number of Lloyd’s syndicates.
For those practices that have or are likely to experience difficulties in the sourcing of adequate insurance cover, we hope you find the following note to be helpful.
Everyone will have seen the age-old comedy sketch involving a patient being tapped on the knee by a Doctor with the following reaction being oddly timed and seemingly random. While this may be an unusual metaphor, it can be used to describe the current state of the insurance market in the post-Grenfell world.
As you may appreciate, the Grenfell Disaster and other incidents have caused significant shifts
in the insurance landscape with a number of providers either withdrawing from the market completely, offering cover at much-reduced limits or implementing exclusions or restrictions. So, though your Insurance Broker should use all reasonable endeavours to arrange appropriate levels of cover, the unfortunate reality is that there are likely to be changes in the cover being provided.
Any changes in your insurance arrangements are also likely to give rise to potential issues with the ongoing contractual obligations owed to your Clients.
The Contractual Position
The majority of contracts are likely to include provisions along the following lines:
1.1.1. The [Consultant] shall take out and maintain Professional Indemnity Insurance with reputable insurers carrying on business in the United Kingdom for a period of not less than 12 years from Practical Completion of the Development provided that such insurance is available at reasonable commercial rates.
1.1.2. The [Consultant] shall provide to the Client following its reasonable request, written confirmation by independent brokers, or the insurer, that it has Professional Indemnity Insurance in force for the ensuing 12 months.
1.1.3. The [Consultant] shall inform the Client as soon as reasonably practicable if Professional Indemnity Insurance ceases to be available at commercially reasonable rates and terms as aforesaid or if for any other reason the Consultant is unable to continue to maintain such insurance and in this event, the Consultant shall continue to maintain insurance upon such terms and with such a limit of indemnity as may then be so available and discuss with the Client the best means of best protecting the respective positions of the Client and the Consultant in respect of the Development.
Under the terms of the Clause, you will have accepted an obligation to maintain cover at a pre-determined level for either 6 or 12 years depending on whether it is a simple contract or a contract under Deed.
The Reduced Level of Cover
If the level of cover previously agreed is no longer available, the contract is likely to require you to advise the Client that the terms of the cover available have altered and provide details of the limits and cover currently available. You may also be required to notify the Client of any exclusions that impact on the cover being provided (i.e. cladding work is now excluded etc.)
What Happens Next?
As this then leaves the Client potentially exposed, the contract is also likely to require you to assist the Client in determining how best to protect their position. There may be no clear indication within the terms of the contract to establish what assistance you will be required to provide to the Client, and this may form part of an ongoing discussion throughout the remaining contract period.
In some cases, the contract may also provide a mechanism whereby the Client may be entitled to obtain additional cover to ‘top-up’ any shortfall in the cover you can provide. In addition to providing assistance to the Client in dealing with the placement of any additional cover, the Contract may also give the Client the right to recover any costs incurred in obtaining the cover.
The shifts in the insurance landscape may potentially have a substantial impact on both the level of cover you can obtain and your contractual position with the Clients. We would recommend that you take the time to review your contractual positon to determine the extent of any work that will be required to comply with the contractual obligations you have accepted over the years.
If you would like to discuss the issues raised in this article, please contact me directly.
