Is non-compliant cladding putting your business at risk?

Businesses could fall foul of non-compliant cladding clauses in policies.
Posted on August 25, 2017 in Business

Does your business operate from a building that you own? If so, you could be at risk of significant financial losses if your premises are found to have non-compliant cladding.

London's Grenfell Tower fire claimed the lives of at least 80 people in June. The incident has brought cladding into the spotlight, with experts believing the type of cladding used on the tower helped accelerate the rapid growth of the blaze.

One BBC report suggested the cladding was 14 times the combustibility limit, with the plastic core of the building material burning as fast as petrol.

In the wake of the tragedy, the Australian Institute of Building Surveyors (AIBS) has issued a warning that claiming rectification costs from insurers could become difficult due to policy exclusions over non-compliant cladding.

The impact of Grenfell on Australia

The Grenfell Tower blaze has had wide-ranging effects both in the UK and abroad.

Here in Australia, the fire prompted building ministers to announce revisions to the National Construction Code a year earlier than planned.

In an emailed letter to its members, published in the Australian Financial Review, the AIBS said professional indemnity insurers could refuse to pay out on claims.

"Some clauses exclude claims arising out of 'non-compliant' aluminium composite cladding, whereas others exclude 'non-compliant' and 'non-conforming' cladding or building materials generally," the email read.

"The exclusions that we have seen are broadly worded, removing all cover when non-compliant products exist irrespective of whether the insured practitioner caused or contributed to the issue."

What does this mean for businesses?

Building surveyors and engineers face the biggest risks, as their professional indemnity insurance may not cover them for incidents where non-compliant cladding – and indeed other materials – is a factor within a claim.

Any business that owns property could be at risk of losses if their building has non-compliant cladding.

But Scott Higgins, a partner with law firm Mills Oakley, believes that all building owners should be worried about the news. He expects bodies corporate to seek restitution from certifiers through the courts very soon.

"If you have to rectify the issue and seek to recover the costs – which could be in the millions – by reclaiming those under insurance, if that certifying authority doesn't have an insurer standing behind them, there's less comfort there that you're going to be able to recover the cost," he explained.

Ultimately, any business that owns property could be at risk of losses if their building has non-compliant cladding, which is why affected parties should contact insurance experts to discuss their options.

Please get in touch with MGA Insurance Brokers today.