In an interview yesterday with Insurance Business, Alex Rosenfield (pictured), partner at Fenchurch Law shared context as to why insurance companies should be bracing for new legal challenges after a court made the first Building Liability Order (BLO) under the Building Safety Act 2022 (BSA).
Among the takeaways from the case, Rosenfield highlighted that the pressing questions for insurers should be whether they will provide cover for BLOs and how BLOs will impact the construction liability landscape. In a follow-up feature, Rosenfield also touched on what the case means for policyholders – particularly with regards to those bringing construction liability claims against associated corporate entities, even if the original company has since become insolvent – and what brokers need to know in order to protect their clients.
“The prospect of a BLO gives leaseholders and residents peace of mind that the courts will strive to find ways to make others accountable for the costs of putting the buildings right,” he said. “That’s an important message to hammer home and is a stark reminder to developers that the days of evading responsibility by undertaking (unsafe) work via thinly capitalised or insolvent SPVs are at an end.
“On the other side of the coin, it will also mean that developers need to make sure they’re adequately insured to meet those liabilities, to the extent that their insurance will actually respond which, as I already noted, is uncertain.”
As to whether the issuance of BLO means that claimants have a greater chance of receiving appropriate and fair remuneration following a claim, he shared that, as far as leaseholders/residents are concerned, there will certainly be a greater scope to ensure that others fund the work necessary to remediate unsafe buildings. “[That’s] because previously it was possible to pierce the corporate veil - which is essentially what a BLO does - only in exceptional circumstances.”
An area of particular interest in the case is the question mark over the extension of the limitation for construction claims under the Defective Premises Act. Touching on what this means for construction professionals and what their brokers need to know about the change, he highlighted that the BSA has significantly changed the limitation period under the Defective Premises Act.
This has shifted from six years following completion of the work, he said, to 15 or 30 years depending on when the work was done. For example, if the work was done before June 28, 2022, (being the date when the relevant parts of the BSA became law), it will be 30 years. Meanwhile, it would be 15 years if the work was completed after June 28, 2022.
The extension of the limitation period is considered to be one of the most, if not the most controversial changes made by the BSA, he said, because it means that developers can potentially now find themselves on the hook for liabilities that previously were long time-barred.
The extension raises a host of questions, including from an insurance perspective.
“The first question is, when applying for insurance, do policyholders need to check their records, in some cases, as far back as 30 years, and disclose work done which might now, in light of the new limitation periods, be the subject of a DPA claim? Quite arguably,” he said.
“Furthermore, will that even be possible in circumstances where documentary records no longer exist, or if the people who did the work have moved on? And even if they are still around, will they remember the work? Potentially not.”
Will insurers look to limit their liabilities for historic work by way of retroactive liability dates? For Rosenfield, the answer is “possibly”. And finally, he asked, will the changes in the law make obtaining insurance more prohibitive, and will be premiums be more expensive? “Possibly.”
“I think the main point to note for brokers is that the BSA has brought about a paradigm shift as far as liabilities for unsafe building work are concerned,” he said. “Developers may now find themselves responsible for (a) historic liabilities, (b) work done by others in the same corporate group (by way of a BLO), and (c) for a whole host of other liabilities which the BSA has created.
“It would be prudent for brokers to discuss with their policyholder clients how the landscape has changed, and to ensure, insofar as they can, that they’re adequately insured for the new exposures to which the BSA has created.”
