The Role of Insurance (David Pryce, Fenchurch Law)
Ordinary property insurance policies respond to damage. The classic test for ‘damage’ in English law is a change in the physical condition of the property which is unwanted by its owner which impairs its usefulness or value. The problem with combustible cladding is that it was dangerous when it was first installed: nothing has changed about its condition. It therefore does not engage a typical property insurance policy. Latent defects policies, on the other hand, provide cover in the event of an inherent defect in the design, or materials which become apparent after practical completion.
There are advantages to pursuing a claim under a latent defect policy. In principle, it is more straightforward than a claim in contract, tort or the Defective Premises Act 1972 (discussed by the third Panel). Policies operate on a ‘non-fault’ basis: the policyholder does not need to establish any wrongdoing. They also provide a single point through which to recover the costs of repairing a building following the discovery of an inherent defect.
David provided examples from different insurers of clauses in latent defect policies that trigger coverage (see slide 3). They are similar in that they respond (a) to imminent danger to the health and safety of occupiers (b) that is caused by a defect in design or a failure to comply with the building regulations or standards that applied at the time of construction.
Insurers are, however, resisting these kinds of claims. David identified three reasons commonly referred to; his response is in italics:
- When it comes to non-compliance, insurers are pointing to what was known and acceptable practice at the time, arguing that we must not look back with the benefit of hindsight. But this is not the question: it is not about blame, but about whether the defective cladding breaches building regulations, now, in a way that triggers the policy.
- Insurers are arguing that there is not a present or imminent danger, noting that the properties have not been evacuated, and that waking watch removes any danger. But waking watch does not remove the danger, it only mitigates it. Furthermore, waking watch proves that there is danger, or it would not be needed.
- There is possibly a sense of grievance emerging from the fact that latent defect insurers were not consulted when politicians said, in the early aftermath of the Grenfell tragedy, that this was a matter for insurers. It is unfortunate that entrenched positions developed; early and more open communication may have avoided this.
There are also exclusions in these kinds of policies. Typically, they will not pay out in respect of indirect or economic loss, unless this is specified in the policy. The most important irrecoverable cost is price of a waking watch.
Local Authorities: The Legal Framework (Justin Bates, Landmark Chambers)
In May 2018, the Ministry of Housing, Communities and Local Government (‘MHCLG’) issued a direction under section 3(3) of the Housing Act 2004 requiring local authorities to review housing conditions in their area, and to pay particular regard to ACM cladding. They were required to notify MHCLG of what they discovered, and to review fire safety more generally in those buildings.
At the end of this process, the local authority must determine if the hazard is a Category 1 (requiring the authority to take action) or Category 2 (where the authority may take action): the majority of cases where fire safety is involved are Category 1. An Emergency Prohibition Order closing the building is possible, but the most likely response is an Improvement Notice specifying the remedial works and the time for compliance: an overview of enforcement powers was issued by MHCLG in February 2019 (see also discussion of examples here).
One critical question is who is to be served with the notice. It must be served on the owner of the premises, but for a multiple occupancy building, it can be very difficult to determine whether this should be the freeholder, a person holding or entitled to the rents of profits under a lease of which the unexpired term exceeds three years, or – for common parts – an owner of the building or part of the building concerned or – for external common parts – the owner of the particular premises in which the common parts are comprised. The Upper Tribunal has previously determined that an RTM or RMC company is not an owner: Hastings BC v Braear Developments Limited (see also discussion here). Given how modern developments are managed, often with tripartite leases with a management company, it can be very problematic to determine the ‘owner’ who ought to take the action specified. It is a crime to fail to comply; and if a leaseholder is served, they may not be able to change the cladding, but will have to petition the company managing the property instead.
The Legal Framework in Practice (Linda Bailey and Julie Rhodes, Bradford Council)
Linda Bailey and Julie Rhodes spoke from the perspective of a local housing authority that is engaged in enforcement action. They provided a case study example of a six-storey, 20m high building, with privately owned residential flats with mixed occupancy (owner-occupiers and tenants). The sample building is assumed to have been compliant with Building Regulations when built, although it is covered in Category 3 ACM cladding.
Under the Housing Act 2004, the local authority is required to give notice to owners and occupiers in order to carry out an inspection. This can require hundreds of notices for even small buildings, as well as research and investigations into who should be served. Furthermore, the inspections themselves (including not only cladding, but also dry-risers and other parts of the structure) are a significant undertaking.
The Housing Health and Safety Rating System is evidence-based. Part of it is a sliding scale based on both the likelihood of fire and the harm that would be manifested if there is a fire. While ACM cladding does not increase the likelihood of a fire starting, it does increase likelihood of it spreading. In practice, the enforcement options vary depending on the score but in the case study example, although the presence of ACM increased the scores, as it increased the risk of the spread of flames, it would still be Category 2 (not the higher Category 1). This affects the enforcement options available.
Determining the ownership of a building can be very complex. As the local authority has to decide the identity of the owner, and on whom to serve the notice, it spends a great deal of time carrying out searches (Land Registry and Companies House) and taking legal advice. It is necessary to be able to justify each decision, as an appeal against notices served can be likely.
In practice, the local housing authority, building control and the fire service need to work as a team. Interim measures can be very expensive and quickly become unaffordable for leaseholders, but if they are removed, the Fire Service can require evacuation of the building. Furthermore, clear communications with residents is vital.
How to cite this blog post (Harvard style)
Bright, S. and Sawtell, D. (2019). The Oxford Conference: Legal perspectives on putting buildings right post-Grenfell. Available at: https://www.law.ox.ac.uk/housing-after-grenfell/blog/2019/10/oxford-conference-insurance-LAs-and-fire-service (Accessed [date])