PII Market Update: Fire Exclusions

We continue to see the Professional Indemnity Insurance (PII) market harden for Architects, Engineers, and Contractors who purchase a Design and Construct PII policy. We are now firmly in a landscape where the capacity available from insurers has reduced and they have very little appetite to write new business.

This shortage of capacity means that premiums continue to increase and some firms have no option but to reduce their limit of indemnity. Since the end of July last year, we sadly report that there has been a trend of Insurers seeking to reduce the limit they are prepared to offer at renewal, not only in “amount” but also the “basis” of cover; for example moving from an ‘any one claim’ limit, to an aggregate with defence costs included within the limit. However, there are solutions to all of these issues if the correct broking strategy is employed. This article focuses on one of the current major concerns to this sector, fire risk.

Fire Safety Exclusion

Since late 2019 there has been a market wide approach from PII Insurers to exclude or limit cover for claims relating to fire safety, which has moved on from the previous exclusion or limitation that only related to the combustibility of façade/ cladding. An example of the most onerous of these exclusions is outlined below.

“This policy shall not indemnify the insured for any claim, circumstance, loss, liability, cost, expense or defence costs, or part thereof, arising in respect of or in any way related to or in connection with the fire safety of any building.”

Under such a clause there is no cover for fire safety claims arising against you or your sub-consultants, be it the costs of re-design, rework, repair, rehousing, loss of value of buildings, or any other consequential financial losses.  So any allegations of a breach in professional duty for the design, advice or specifications around fire safety throughout a building would be excluded under the PII policy. It is also important to note that the costs of defending such claims, however spurious they may be, would also be excluded.

Each Insurer is looking to apply their own versions of these clauses, the variance points in coverage can be;

• Rather than a full exclusion, offering some restricted cover for “rectification and rework costs only”, with an aggregated sub-limit
• A higher excess, which also applies to costs of defending such fire safety claims
• Full exclusion, but maybe only for claims that actually allege a breach of “relevant fire regulations”,
• Full exclusion, but rather than “any and all fire safety issues within a building” a specified list of elements such as fire doors, internal walls, facades, roofs etc.

We advise that for your upcoming PII renewal these steps need to be followed to mitigate the exposure created by this trend in the market:

1. Make sure your renewal submission is sent in as early as possible to your broker.
2. Make sure the renewal submission presents well, and all information is clear, which of course should be assisted by your broker.
3. At the start of the renewal process, ask questions of your broker - Are they discussing this issue early in the renewal process and are they agreeing with you which form of these exclusions, if one has to be accepted, is best for your particular firm’s risk profile?
4. Use a broker with specialism in PII for firms in the Construction sector, as this is invaluable in a hard market.

We expect to see this environment for some time to come. Insurers need to be able to calculate their exposure to write risk, but the message from the PII market is that until the new building safety regulatory framework is clear and in place in the UK, it is unlikely we will see much softening in market appetite on this issue.