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PI ‘crisis’ as insurers retreat from cladding risk

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Insurers are pulling back from exclusion-free professional indemnity (PI) cover for building surveyors and fire engineers, sparking fears the construction industry could “grind to a halt”.

Industry groups say a “major insurer” has turned its back on cover that is free from combustible cladding exclusions, and the Lloyd’s market – traditionally the home for much of this business – is also retreating.

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 Tower 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 most of the $5.7 million payout to apartment owners – could complicate matters further.

The Association of Accredited Certifiers says urgent action is needed.

“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 that 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 averted by encouraging new insurers to enter the market.

But it says a similar approach is unlikely to work 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.”