Construction

In this chapter of our Annual Insurance Review 2018, we look at the main developments in 2017 and expected issues in 2018 in the construction sector.

Key developments in 2017

We have seen a significant number of claims arising out of renewable energy projects in 2017. Primarily, these have been in the wind, solar and biogas sectors, and have often been pursued by adjudication or arbitration rather than through court proceedings.

A theme in the allegations is that the components of the schemes are not suitably integrated and, taking a holistic view, the scheme is not appropriate for that client or environment. There are many possible reasons for this,including: that it is not clear who holds responsibility for integration; the client does not appreciate the risk of trying new technology; the scheme is too difficult to operate in practice; and the rates of return are not as high as the client expected.

It is important for insurers to consider whether the insured has responsibility for an integration role when assessing the risk they are being asked to underwrite. Insurers may also wish to ask questions to check that the insured’s contracts are clear and that the role of each party on a project is set out in writing.

Insurers may also want to consider whether the insured chose or recommended the type of technology being used, whether the client has been advised of the risks involved in using the technology, and whether the insured’s contract is based on the client achieving a specific rate of return.

What to look out for in 2018

Claims arising in respect of cladding and building envelopes look set to be a potential issue for construction professional indemnity insurers in 2018.

The design and construction of facades is a complex area, often undertaken by a specialist design and construct subcontractor. Issues with ensuring the water-tightness of facades are not uncommon, and can prove difficult to rectify. Attempts at patch repair often give way to a demand for the complete replacement of the facade many years after practical completion, once the building owner’s patience runs out with the patch repair approach. If leaks do arise, investing in ensuring that the true cause of the leaks is identified can lead to savings in the long run, given the significant costs associated with replacement and further potential for consequential losses, such as business interruption and diminution in value.

In addition, 2018 will likely see significant developments in the fire safety regulations that apply to the design and build of facades. Following the tragic events at Grenfell Tower, the independent Review of Building Regulations and Fire Safety was set up. Led by Dame Judith Hackitt, it is expected to provide its provisional report shortly. The Grenfell Tower Inquiry, led by Sir Martin Moore-Bick, will also consider the adequacy of building regulations, among other things, and anticipates providing its preliminary report around Easter 2018. The impact of these developments on the fire safety regulations that apply to cladding,and the construction professionals that apply them, will be substantial.

Download our full Annual Insurance Review 2018 for more insights.