As you know, the professional liability insurance market has hardened in recent years and this trend is expected to continue. The challenges include significantly reduced capacity, increased premiums and coverage restrictions across the market.
As a result of these recent trends, the Department of Housing, Communities and Local Government (the “MHCLG”) pursuant to 47 (6) of the Building Act 1984, has amended the insurance requirements for housing plans. insurance for licensed inspectors.
Following the above changes, Griffiths & Armor, which insures 98% of the nation’s Licensed Inspectors (âIAsâ), has changed its strong insurance policies to reflect changes in government and changes in the market, and recently has its revised programs approved by the MHCLG. New insurance plans will have an impact on contractual arrangements for RNs in the future and, therefore, there are key changes RNs will need to note, which is the focus of this article.
Changes to RN insurance plans will affect all contractual agreements made on or after 1st July 2021.
What are the main changes that RNs should be aware of before entering into a contract and / or starting their services?
1. LIMITATION OF INDEMNIFICATION AND LIMITATION OF LIABILITY.
- From July 1, 2021, AI coverage will operate for each loss up to the limit of the benefit the AI ââchooses to purchase (e.g. Â£ 5million for each loss).
- RNs will need to think carefully about the appropriate limit of liability to include in their contract.
- With regard to the limit of professional liability insurance to be maintained in each contract, contracts should expressly stipulate that the continuation of professional liability insurance should be subject to the availability of such insurance at rates and conditions. commercially reasonable, and that this assurance should be maintained in accordance with the guidelines issued by the
2. CONTRACTUAL CONDITIONS ARE NOT HARDER THAN THE CIC / ACAI CONTRACT
- Under the new insurance schemes, all contracts concluded after July 1, 2021 must not be more onerous than the provisions provided for in the CIC / ACAI contract for the appointment of a certified inspector, third edition, 2020 (or any later amended version), (the âCIC / ACAI Contractâ), otherwise they will be incompatible with professional liability insurance coverage. The easiest way to comply with this requirement would of course be to only contract using the CIC / ACAI contract. However, we appreciate that AIs have their own bespoke standard T & Cs that are more suited to their mode of operation (or the client imposes an alternative form of contract).
- We strongly advise AIs to immediately (if not already) conduct a review of their standard terms and conditions and, if applicable, ensure that any other form of contract entered into by the AI ââfor the provision of approved inspector services contains provisions that are no more onerous than under CIC / ACAI
- Here are some key provisions to include as an example:
- a clause limiting overall liability;
- a comprehensive clause of competence and reasonable care;
- an express exclusion with respect to any requirement for AI to provide collateral guarantees and / or letters of confidence;
- an express provision stating that the relevant client, and not the IA, will be responsible for the compliance of the relevant project with the building regulations made under the 1984 Building Act, including the 2010 building regulations; and
- a limitation period which is not more than 6 years from the date of completion of the services or termination, depending on the
3. LIMITATION OF LIABILITY WITH RESPECT TO FIRE SAFETY NOTIFICATIONS (âFSNâ).
- From 1st July 2021 coverage for FSN is limited to each claim and a total limit of compensation with a minimum total of Â£ 3
- Coverage for FSN applies with respect to all losses, claims, damages, costs, expenses, demands and / or any other liability arising directly or indirectly from the fire resistance and / or flame retardant characteristics of the exterior cladding.
- It is essential that IAs consider specifically limiting their liability for these risks in their contracts and carefully consider inserting a low liability limit, which does not spend the overall total amount (e.g. Â£ 1million in total). A properly drafted âevaporation clauseâ can also be used.
4. THIRD PARTY CONTRACTS, WARRANTIES, WARRANTIES AND NOVATION.
- From 1st As of July 2021, the new insurance schemes exclude coverage of novation agreements, collateral guarantees, rights of third parties (in accordance with the Contracts (Third Party Rights) Act 1999), letters of confidence and respect third party contracts. While these are often common requirements in construction contracts, these elements do not fit the statutory role of an RN and should be countered for consistency with professional liability insurance.
- In certain circumstances, RNs may be required to provide AI services relating to the work of a project for a client at first, and then later be required to enter into a new contract with another client (for example in a design and construction context) with respect to the same works. While the new contact may not be a novation agreement, AIs should be aware of the risks of entering into a new contract with a second customer, including, among other things, (i) the AI ââmay have overlapping tasks to both the first and the second customer in accordance with the Construction Act 1984 and the Building Regulations 2010; and (ii) the two separate contracts would create âtwo potsâ of liability. Therefore, RNs should think about how best to mitigate the risks arising from both contracts and seek legal advice if necessary.
5. ASBESTOS AS AN ADDITIONAL GUARANTEE
- From 1st July 2021, asbestos coverage is no longer a âcomplementâ to the new insurance plans because coverage for these risks is now excluded. Therefore, it is important that liability for asbestos is excluded in all contracts of 1st July
6. NON-STATUTORY SERVICES:
- The new insurance plans will only cover liabilities arising from the legal obligations of an RN. Therefore, all non-statutory services would not be covered by the insurance coverage approved by the MHCLG and would have to be insured separately. Statutory services are services that fall under the jurisdiction of an IA under the Building Act 1984 and Building Regulations 2010, which include, for example, building control services in accordance with a notice that are carried out at the pre-planning stage and fall under the functions of an AI as provided for by the construction regulations of 2010. Examples of services that should be provided separately would include, among others, the work of expert witness, any advice provided outside the jurisdiction of England and Wales, technical audit and warranty work and fire risk assessments. The examples listed above are not an exhaustive list of the types of services that would not be covered by the insurance coverage approved by the MHCLG. However, if in doubt, please contact Griffiths & Armor for clarification.
To sum up, the two key points that RNs should note before starting any licensed inspector service and / or entering into contracts with clients related to them, are that from 1st July 2021, all contracts entered into for the provision of AI services (i) must contain provisions that are not more onerous than those set out in the CIC / ACAI Contract; and (ii) must contain provisions compatible with the professional liability insurance coverage of the AI.
As noted above, the easiest way for RNs to comply with the above requirements would be to only use the CIC / ACAI contract and ensure that all contract provisions comply with the coverage of the contract. professional liability insurance specific to AI. However, as this can often not be practical in all situations, we recommend that AIs ensure that:
- if IAs enter into contracts on the basis of their standard T & Cs, ask (as soon as possible) lawyers to conduct a complete review of their standard T & Cs in relation to the CIC / ACAI Contract and their policy professional liability insurance; and
- if AIs are required to enter into any other form of contract that may be imposed by customers, these alternative forms should be rejected first and where this is not possible, the AI ââshould ensure that each contract is examined by a lawyer against the CIC / ACAI contract and the professional liability insurance of the AI