Building Safety Act 2022
The Building Safety Act 2022 is undoubtedly one of the most assertive reforms to building safety law implementation in the UK. The Act has made significant changes to both the law and practice within the construction industry, with potential implications to a variety of parties as a result.
Passed in June 2022, the Act intends to improve the safety of developments during the construction process, which is welcomed by the insurance industry. However, inevitably, insurance issues are also subsequently created.
Following the Grenfell fire tragedy, the ‘Building a Safer Future’ report - produced as a result of the Dame Judith Hackitt review - lead to the Act. The Act not only impacts ‘higher risk’ buildings over 18m or seven storeys, but also the wider construction industry. The Act proposed an industry-wide culture change as new roles and responsibilities were devised for those: procuring, designing, and constructing high-rise buildings. One main area highlighted was duty holders having to ensure that certain factors are met at each stage (‘gateways’) of the construction process, and to ensure the work complies with building regulations.
This Act is the first phase of scheduled future changes. More specific regulatory bodies will be set up in its wake, resulting in new regulation for the detailed obligations duty holders owe.
Limitation periods
Limitation periods under the Defective Premises Act 1972 have been increased from six to 30 years for projects completed before the June 2022 passing of the Act; with extensions to 15 years for projects completed after that point, increasing exposure for insurers and their policyholders as a result. This is already creating amendments to standard building contracts, with limitation periods post practical completion (PC) rising from 12 to 15 years.
Previous projects worked on under a deed contract containing 12 years limitation after PC, have now been extended to 30 years. Consequently, a civil action brought under the new Act as primary legislation, would overwrite any existing contractual agreement in place regarding limitation periods. Professional indemnity insurers (PII) could attempt to restrict their policies covering this extended limitation as a consequence. Additionally, the Act presents issues in defending claims regarding document retention on older projects. Many firms may have failed to archive projects beyond the previous contracted 12 year limitation, believing claims would be time barred. However, with that time bar now essentially removed, it could result in actions being brought against a construction professional with a defence heavily impacted by the loss of such files. Consequently, we now advise - where possible – retention of documents for: at least 30 years for existing projects, completed prior to the Act (June 2022), and at least 15 years for subsequent projects.
The dutyholders
Currently, the Act does not clearly define the legal level of duty and obligations for the various construction cycle duty holders. One possible implication is: relevant responsible firms - and therefore its directors - having an enforceable regulatory liability regarding the safety of the end development. Regulatory or criminal actions could result against individuals for breaches of the Act; none of which are automatically covered by a professional indemnity policy. While a concurrent civil claim would be covered, not all policies have extensions that cover regulatory actions against the architect, engineer, or contractor. Even if these extensions are written into cover, they are often only presented with the caveat of ‘insurer consent’ to cover the costs of such an investigation, if they believe it will mitigate future civil action. Resulting fines and penalties would not be covered regardless. Furthermore, a duty holder’s exact burden of proof is yet to be fully outlined regarding how open and collaborative they need to act, or whether they can defer this obligation to a sub-contracted party. As we remain in a hard PII market, it is difficult predicting whether insurers will insert new extensions onto PII policies to cover regulatory breaches under this Act.
Wider parties can bring actions, and who is liable?
The Act creates new rights of actions against parties who:
Don’t comply with cladding or construction product requirements.
Manufacture an intrinsically defective cladding or construction product.
Provide a misleading statement about a cladding or construction product when either providing or marketing it.
To trigger the new law, a product must have been used in the construction of a residential building and, subsequently, make it ‘unfit for habitation’.
The provisions create a potential liability for anyone involved in manufacturing, marketing, supplying, or installing construction products. Crucially, anyone from owners to tenants with an interest in a residential building can now bring a claim under the new Act.
This is irrespective of having a direct contractual connection with the breaching party. Additionally, property is not limited to personal injury or damage claims, but also economic losses - such as alternative accommodation – as a result of the above stipulations. Potentially, a whole new area of perceived exposure by insurers could develop, stemming from parties previously adjudged unable to raise claims. The impact on premiums remains to be seen.
Building liability orders
Many developments are carried out by developers or contractors under special purpose vehicles that are often dissolved after project completion; thus obstructing potential negligence claims. However, the new “Building Liability Orders” contained within the Act, present fresh challenges for insurers. Now, associated or parent firms of dissolved entities are as corporately liable as if they were the dissolved entity itself. While appearing justified, the change could present situations where insurers utilise their subrogation rights more frequently against third party entities. This leads to more recovery actions against other firms involved in the project - which will impact their claim record negatively. However, equally, this ostensibly leads to higher recovery of losses on paid claims for their own policyholders, which could reduce the erosion of that policyholder’s claims record.
In due course, the increased scrutiny around cladding and construction products will, ultimately, have implications for construction professionals and their insurers. Various professional indemnity insurers approached for comment, on the potential additional exposure the new Act could bring to their policyholders, appear to be ‘in a holding pattern’ at this stage. Inevitably, they will hold an expectation for practices to comply with the new provisions of the Act as best practice and, as such, may make enquiries regarding this. However, any policy condition alternations may be driven by the first test of a live claim scenario.
If you have any questions about the Buildings Safety Act, or would like to know more, please contact your Marsh adviser.
