IUA tackles high-rise fire safety risks with new model insurance clause

The International Underwriting Association (IUA) has published a new model insurance clause that covers fire safety risks.

Underwriters seeking to offer professional indemnity insurance for building cladding remediation work are free to make use of the new IUA Building Safety Fund Cladding and Fire Safety Limited Exclusion and Aggregation Clause, published today (1 September 2022).

The IUA hopes that the new clause will provide confidence to insurers that are willing to provide professional indemnity cover to projects removing cladding from high-rise buildings.

A survey of IUA members carried out in September 2021 found that there was a “cautious willingness” to underwrite fire safety risks on new projects to remove defective cladding from high-rise buildings.

Around two-thirds of respondents said they would provide a limited form of cover, while a further 4% were willing to offer “unrestricted protection”.

The IUA – the representative body for companies in London providing insurance – said that the new clause would help to “speed up the removal of unsafe cladding, encourage a greater safety culture within the construction industry and provide insurers with increased confidence in risk management processes employed by the construction sector”.

Wording within the new clause specifies that insurers’ liability in respect of cladding claims and fire safety claims that arise from works fully funded by the Building Safety Fund was limited to “any actual direct loss, cost, expense or defence costs” incurred by the policyholder in rectifying the work where such losses occur “as a direct result of any negligent act, negligent error or negligent omission in the conduct by, or on behalf of, the insured as defined in the policy”.

The wording – which was developed in partnership with the Department of Levelling Up, Housing and Communities – also specifies conditions for indemnity payments, including the appointment of a qualified clerk of works who has experience of fire safety in high-rise residential buildings.

The government department helped develop this wording for use in work being completed under the government’s £4.5bn Building Safety Fund. The fund was created by the government in 2020 to cover the cost of remediation of unsafe cladding on high-rise buildings over 18 metres in England.

Key processes

The IUA’s director of legal and market services, Chris Jones, explained: “Our new model clause sets out a number of key risk management processes that will ensure work being carried out is conducted within recognised industry standards.

“This will help improve accountability for safety measures and foster an investment in quality construction.”

The market for construction professional indemnity insurance has been difficult in recent years as concerns over the potential for historic liabilities to develop into future claims manifested in the wake of the Grenfell Tower fire in 2017.

Jones added that the new clause should provide underwriters “with greater confidence to offer effective insurance solutions for future work”.

Greg Clark, secretary of state for levelling up, housing and communities, said: “Our priority is making sure people’s homes are safe and that safety standards are high. This new clause that has been developed with my department will help us do just that.

“We welcome the work of the IUA and the underwriters who are taking a proportionate approach to fire safety cover and I thank insurers in advance for using it.”