Managing risk in a risk business: the role of insurance in construction

Many thanks to Emma Hynes and David Pliener from Hardwicke chambers who came to Simmons & Simmons LLP recently to provide an informative and detailed talk considering the key issues concerning construction insurance.

The talk titled: “Managing risk in a risky business: the role of insurance in construction” included the following:

• Consideration of the different types of insurance policies that are applicable to construction projects, the way these insurance policies operate, and the parties responsible for taking on the insurance.
• The uncertainty concerning whether policies will engage in respect of cladding claims.
• The differences between a CAR policy and a composite policy and the subtleties in this difference.
• Issues regarding a lack of insurance cover for existing structures in the context of a construction project.
• The talk also considered they key current themes in respect construction policies, these are as follows:
  • Technology: for example the use of 3D printing - the difficulties inherent in establishing whether the defect was caused by workmanship; design; manufacturing fault or a combination of two or more of these matters. The use of flat pack buildings was also discussed; in particular problems arising where it takes a long time for a relatively minor defect to be discovered and by this time, due to the ease of construction, a large number of properties have been constructed.
  • Rainscreen cladding following Grenfell: discussions concerning whether a defects liability policy will cover remedial works to replace cladding that is considered to contravene Building Regulations, despite the fact that when the cladding was installed it was considered to be compliant. In particular, in line with standard policy wording, is cladding that fails to comply with the Building Regulations a “present or imminent danger”?
• The remainder of the talk centred around case law that considered whether loss was considered to be “damage” (and therefore covered by under a CAR policy) or a defect (and therefore not). Reference was made to typical policy wording in respect of a CAR policy as follows “the insurer….will indemnify the Insured…. in respect of physical loss of or damage to the Insured Property”. In particular, that in order to trigger the policy, damage has to be present which requires “an adverse change in physical condition”.
• Discussion also focussed on the key cases in this area including the following:
  • Blue Circle Industries Plc v MOD [1999] Ch 289 – concerning contaminated land which posed no risk to health, and
  • Hunter v Canary Wharf [1996] 2 WLR 348 where large quantities of dust into residential properties caused significant loss.
• In respect of the difference between damage and defect it was ultimately concluded that the case law decisions were considered to be impressionistic; however provided useful starting point.