The background to the new schemes and their approval is lengthy and complex, but put as simply as we can, Approved Inspector insurance has to meet the minimum criteria set by the Ministry of Housing, Communities and Local Government (MHCLG)
Following the Grenfell Tower Fire several insurers have withdrawn from the market, and as a result MHCLG agreed to amend the insurance criteria, and the new criteria were published in November 2019. The new schemes which have now been approved, will apply to all AIs with renewals from 1st May 2021 onwards.
Although we renewed our insurance in March the new policy wording agreed by MHCLG contain some fixed dates in terms of changes to cover and how it operates, that will affect our clients from July 2021 regardless of the date of renewal.
The key changes to coverage of our insurance policies are as follows:
Revision to definition of ‘The Business’:
The Insurance Criteria only relates to the statutory obligations of an Approved Inspector. Therefore, the PI policy is structured to specifically cover only the liabilities arising from the statutory obligations of an Approved Inspector. The definition of ‘the Business’ now refers to the role of an Approved Inspector, as defined in the Building Act 1984.
Fire Safety Notifications (FSNs):
Going forward, the following amount of cover will apply for Fire Safety Notifications (FSN) will be £1m each & every claim basis, subject to a minimum of £3m aggregate – this will be an improvement on existing cover.
The definition of FSN will be:
‘Any Claim(s), losses, liability, costs, expenses or Other Costs directly or indirectly arising out of or connected to the fire resistant and/or fire-retardant characteristics of external cladding systems.’
The new approved policy wording contains a new exclusion in respect of ‘any Claim arising from a contract, agreement or appointment signed, entered into or concluded on or after the 1st July 2021, which contains provisions more onerous than the ACAI/CIC approved ‘Contract for the Appointment of an Approved Inspector…’
It has long been contended by insurers and AIs alike that given the nature of an AI’s role and the fact that the duties and obligations of an AI are clearly set out in statute, it is inappropriate for additional contractual obligations to be accepted.
Third Party Contracts and Collateral Warranties:
An exclusion is included in the policy in relation to Claims arising from Collateral Warranties or other Third-Party contracts signed after 1st July 2021.
The fact that Collateral Warranties and Novation Agreements are not appropriate for a firm carrying out a statutory role has been accepted for several years. Again, this is a fixed date detailed in the policy wording itself and will apply to all AIs regardless of renewal date.
Total Aggregate liability of £15m:
One of the criteria requirements of the MHCLG schme is an overall cap on exposure per AI per year of £15m in the aggregate. This is written into the policy wording going forward.
The length of run-off cover reduces from 10-years to 6-years, for any Initial Notice signed after 1st July 2021. This is a technicality dating back to the inception of Approved Inspectors in the 1980’s – reducing it to six years brings AIs in line with RICS members among others.
Public Liability Policy:
There have been changes to the wording and structure of the Public Liability Policy which generally mean that clients will benefit from additional or greater extent of cover going forward (compared to their expiring policy).