In the wake of serious events focusing attention on the hazards of non-compliant aluminium cladding, many professional indemnity insurers have begun to raise premiums in response to increased claims and legal costs. 

More recently, many insurers have even begun applying exclusions to PI policies within the construction industry which can severely limit the coverage provided. It’s important for Master Builders members to be aware of how these restrictions can affect your business in the event of a claim. 

The emerging scrutiny from PI insurers directed toward the building industry is largely related to product specification.  Of most concern to them is the use of non-compliant building products, primarily cladding.  These concerns are in direct response to the fires at the Lacrosse Apartments in Docklands and Grenfell Tower in London, along with subsequent identification and increased awareness of the widespread use of non-compliant cladding in Australia and overseas.  In addition to cladding, the interim report from the 2015 senate inquiry into non-compliant building products also highlighted concerns with non-compliant electrical cables, issues with asbestos contained in various imported building products including cement compound boards, non-compliant engineered wood products, and also non-compliant glass.     

While premium increases are an understandable concern, recently insurers have started to apply exclusions which severely limit coverage for not just non-compliant cladding, but all non-compliant building products.  Some insurers are even seeking to exclude cover for claims related to non-conforming products or products that are not fit for their intended purpose.  With PI insurance written on a ‘claims made’ basis, having a severe exclusion imposed on your policy in 2018 will result in any new claims or actions brought against you being subject to the new, potentially very limited, PI coverage.  Effectively, if legal action is brought against a builder in 2018 for design/product specification which relates to a past project from several years ago, the applicable insurance policy would be the 2018 coverage, hence the importance and seriousness of ensuring your PI cover does not contain extreme limitations.

Many builders may feel they have only a limited exposure to issues related to design or product specification.   Should any non-compliant products lead to property damage or injury, the builder will almost certainly be involved in any litigation, incurring, at a minimum, legal defence costs and potentially a portion of the final judgement.  Even without any subsequent damage or injury, the removal and rectification of any projects containing non-compliant products is likely to be very costly, with builders again expected to be pursued for at least a portion of the costs.  These issues are complex and time-consuming, with each situation different, leading to further increased legal costs.

This emerging issue is also having broader effects on the wider construction industry, with other occupations like building surveyors, architects, and engineers experiencing similarly significant price increases and coverage restrictions.  While we expect to see further regulations and action on building products over the coming months and years, and insurance market fluctuations on pricing and coverage will continue, it’s critical to understand exactly how your current PI cover would respond in the event of a claim related to product specification. 

When reviewing PI coverage, it’s important to ensure you are aware of any reductions or limitations in cover which may be imposed on your renewal.  Check with your insurance broker, or contact MBA Insurance Services to better understand how your policy will respond in the event of a loss or claim brought against you. Call us on 1 800 150 888.