The insurance implications of the Building Safety Act

Two years after the Building Safety Act (BSA) received Royal Assent in April 2022, several reported decisions have provided initial guidance on interpretation of key principles, whilst many other disputes over novel causes of action are pending before the courts this year.

New duties

On 6 April 2024 transitional provisions came to an end, giving full effect to the new building control regime applicable to high rise residential buildings, and new dutyholder and competence requirements for all design and construction work. An extension to 6 July 2024 has recently been announced for building control professionals to seek accreditation under the revised framework.

Individuals taking on responsibility for design, construction and/or building maintenance roles prescribed in the BSA should ensure they fully understand the duties imposed and agree building contracts that appropriately reflect the allocation of risk, with adequate liability insurance in place to cover potential breaches. Recent authorities including Sky & Mace v Riverstone [2023] underline the importance of contractual provisions reflecting the parties’ intentions on scope of cover under composite policies, during construction and occupational stages.

Professional indemnity (PI) insurance typically excludes cover for liability arising from terms imposing performance standards beyond reasonable skill and care, and contracting parties should be wary of “fitness for purpose” type language suggesting a form of warranty or guarantee. The Construction Leadership Council have expressed concern that developers are increasingly asking contractors to take on design risks for which they may not be insured, causing confusion and avoidable gaps in project coverage.

Extended liabilities

Insurance capacity for construction PI drastically reduced following the Grenfell Tower tragedy in 2017, and liability exposures arising from consequent building safety inspections, amplified by the BSA’s retrospective limitation periods for claims under the Defective Premises Act 1972 (DPA), have led to many insurers imposing significant restrictions on cover for fire safety risks, together with retroactive dates.

In URS v BDW [2023] the Court of Appeal held that extended limitation periods introduced by the BSA apply to ongoing proceedings as if they had always been in force; developers may be owed duties under the DPA; and economic loss arising from negligent design may be recoverable despite buildings having sold for full value prior to discovery of latent defects. Permission to appeal has been granted, with the Supreme Court hearing listed in December 2024 before a panel of seven justices, considering fundamental questions relating to limitation periods and the scope of duty in negligence.

The BSA introduces Remediation Contribution Orders (RCOs) and Building Liability Orders (BLOs) as a means of requiring developers, landlords or associated persons to remediate building safety defects or contribute to the costs of doing so, giving rise to much broader exposures for construction industry stakeholders and their insurers. Implications of the new remedies are profound, circumventing the protection typically achieved on past projects through use of subsidiary companies.

In Triathlon Homes [2024], corporate entities associated with the developer have been ordered to pay around £18m to remediate fire safety defects to residential blocks in Stratford, despite the remedial works also being publicly funded through the Building Safety Fund. Permission to appeal the First Tier Tribunal decision has been granted and further judicial analysis on the critical “just and equitable” test is eagerly anticipated.

Emerging Risks

The extent to which RCOs and BLOs may be indemnifiable under PI insurance is an emerging risk for insurers and likely to be the subject of coverage disputes moving forward. Some insurers are reportedly taking steps to include specific policy endorsements restricting cover for potential liabilities arising from the BSA.

Clarification is awaited through secondary legislation on important aspects of the BSA regime including new-build home warranties, section 38 of the Building Act 1984 (creating a statutory cause of action for breach of building regulations) and a more stringent regulatory framework covering construction products.

Looking ahead, the Grenfell Inquiry Phase 2 report, due for publication later this year, is likely to significantly impact on the liability landscape; whilst Shepherd Construction v Kingspan, a landmark £70m claim considering the new cause of action against cladding manufacturers under section 149 of the BSA, is listed for trial in the Technology & Construction Court in October 2024.

The BSA represents the biggest overhaul of building safety regulation in a generation, transforming the systems of oversight applicable to complex buildings. The full impact of this sweeping legislative reform, and its ability to deliver on stated aims to embed pervasive culture change throughout the built environment, is yet to be ascertained.

Amy Lacey is a partner at Fenchurch Law