Home / Daily / Lacrosse ruling could worsen PI ‘crisis’
7 March 2019
The construction industry faces “significant and growing risk” if building surveyors and fire engineers cannot secure professional indemnity (PI) cover free from exclusions on combustible cladding, industry groups have warned.
In many states including NSW and Victoria, accredited certifiers must hold PI free from exclusions to maintain their registration.
The focus on flammable cladding since London’s 2017 Grenfell disaster had already made such cover hard to come by.
Now the ruling on Melbourne’s Lacrosse building – which found the builder liable but made the architect, fire engineer and building surveyor responsible for the vast majority of the $5.7 million payout to apartment owners – could complicate matters further.
Added to this a “major insurer” has turned its back on exclusion-free cover, and the Lloyd’s market – traditionally the home for much of this business – is retreating.
The Association of Accredited Certifiers (AAC) says the construction industry will “grind to a halt” if the problem is not addressed.
“Insurers are now shying away from offering insurance cover for cladding to accredited certifiers and fire engineers,” CEO Jill Brookfield said.
“[Brokers] have advised that a major insurer of hundreds of certifying firms would no longer be offering PI insurance policies free of exclusions in relation to combustible cladding.
“If accredited certifiers cannot get insurance, they will be unable to maintain their accreditation and projects will not be able to get a building approval, which will result in the industry grinding to a halt.
“The industry is facing a crisis and this needs to be addressed as a matter of urgency – this is not just an issue which will impact accredited certifiers but one that will impact the entire industry.”
The Australian Institute of Building Surveyors says a similar crisis halfway through last year was only averted by encouraging new insurers to enter the market.
But it says a similar approach is unlikely to work for a second time.
“This was not a long-term resolution,” CEO Brett Mace said.
“The market, as evidenced now, is volatile and unreliable, especially given the rising number of claims relating to the rectification of external cladding.”
Law firm Clayton Utz says the Lacrosse ruling has “immediate implications” for the PI market for building industry professionals.
“In particular, professionals who have been involved in construction with combustible cladding, or cannot satisfy their PI insurers of that risk, may see their insurers impose exclusions in respect of any liability caused by combustible cladding or seek to increase premiums, perhaps to a point where it is uneconomical to insure.”
Chris Bovill, MD of specialist broker Bovill Risk and Insurance Consultants (BRIC), warns against panic and says exclusion-free cover is still available. He declined to name the insurer that has recently retreated from the market.
“We are still placing policies and we still have markets that we’re utilising,” he told insuranceNEWS.com.au.
However, he admits large premium increases are sometimes encountered and securing exclusion-free cover is “not an easy task”.
He believes the Lacrosse ruling may yet be subject to an appeal. “It doesn’t seem right that the builder gets off scot-free,” he said.
In a previous note to clients BRIC confirmed the PI premium pool in Australia is about $5 million and that “this relatively small pool of premium can be exhausted in a single claim”.
“This is one reason why premiums are increasing – insurers now recognise the risk being carried by your profession and are beginning to price that risk accordingly.”
The AAC and AIBS say they are lobbying government for a long-term solution.