Published on 21 January 2019

In this chapter of our Annual Insurance Review 2019, we look at the main developments in 2018 and expected issues in 2019 in the construction sector.

Key developments in 2018

In 2018, we have seen a rise in regulatory investigations against various construction professionals, including architects and surveyors, alleging that they have failed to comply with their Royal Institute of British Architects/Architects Registration Board/Royal Institution of Chartered Surveyors guidelines. The reason for this is not entirely clear; however, it does offer disgruntled claimants an opportunity to test the strength of any future civil claim without incurring adverse legal costs. Obtaining early legal advice can prevent unwarranted investigations growing legs.

As complaints against professionals appear to be on the rise, insurers need to ensure they are prepared. Insurers should clearly state in the policy whether it is intended to cover regulatory and disciplinary investigations in addition to civil claims, and check to see what the policy covers – for example, does the policy respond only to investigations against the firm or against individual directors and employees. In addition, to avoid incurring the costs of a hearing the matter should be resolved at the investigations stage. Therefore, insurers should try to encourage early notification and obtain legal advice. Lastly, it is important to ensure the policy provides an adequate level of investigations costs cover such that there are sufficient funds should the matter be referred to a disciplinary hearing. A policy offering a relatively low sub-limit could end up causing more trouble than if there was no cover at all.

Cavity wall insulation claims are fast becoming the "PPI of the construction industry". We have seen firms of solicitors/”legal advisers” being set up with the sole purpose of contacting homeowners and then pursuing claims relating to the installation of cavity wall insulation, which was marketed as a quick and simple solution to making houses more energy efficient. It has, however, proved to be unsuitable in many cases, and has resulted in claims for its removal (and, often unjustifiably, for other remedial work and allegedly linked losses). Those claims can, of course, take a policy period or two to materialise.

What to look out for in 2019

We expect to see a continued increase in regulatory investigations against architects and surveyors. We have represented many more construction professionals during 2018 than in previous years, and we expect the number of investigations to increase in 2019.

The consequences of the Grenfell Tower fire will continue to have an effect on the construction industry. We anticipate an increase in claims against "other professionals" involved in construction projects, a move away from the “design and build” method of procurement, particularly towards construction management, and greater scrutiny on the regulation of products used in the construction industry. The solvency of contractors, and the effects of an event of insolvency, will likely continue to be relevant to insurers' risk profile too.

Authored by Lucy Cadwallader.

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