RICS PII Market Update: Fire Safety Exclusions

We continue to see the Professional Indemnity Insurance (PII) market harden for RICS Members. Not only are we firmly in a landscape where the capacity available from insurers has reduced, 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.

RICS Minimum Terms and Conditions

On 1st May this year in a response from RICS to maintain Insurer appetite in UK RICS PII, and under pressure from insurers, it became acceptable under RICS PII minimum terms and conditions for Insurers to quote an aggregate with unlimited reinstatements “round the clock” PII limit, rather than an “any one claim” PII limit. Also, defence costs could be included within the limit. The result of this is that whilst a RICS member may be able to keep their clients satisfied that in effect they have a limit for “each claim”, there are added premium costs compounding the general PII market rate rises, because:

1. The primary Insurer needs a “buffer” as a condition of quoting that may mean purchasing a higher total programme limit than before.
2. The costs of any excess layer policies that sit over the primary layer policy rise significantly, as they are now more exposed to having to pay losses than when they were sitting in excess of a true “any one claim” limit.
3. The costs of defence are now included within the limit, rather than paid by the Insurer on top, and the policy excess paid by the policyholder now applies to these defence costs even if it is a spurious claim that is successfully defended.

Fire Safety Exclusion

One of the major changes for RICS members is the allowance of fire safety exclusions on all work, and exclusions regarding reliance on a EWS 1 form in valuation work.

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 that can now be applied to your PII renewal is:

“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 errors or omissions in a building or structural survey regarding the materials present in any part of a building, or the design 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.

Losses arising from reliance on the EWS 1 form

Further to the Fire Exclusions the RICS minimum terms now allow for an exclusion regarding the valuation surveyor relying on EWS 1 form, and the PII may exclude claims arising from a valuation report that does not itself exclude liability to the lender or borrower for any losses arising from the valuation being provided in reliance upon the EWS 1 form.

Steps to take to mitigate against exposure

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 RICS PII, 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. To discuss your PII requirements, please call me on: 0207 133 1425 or complete the get in touch form below.