Certifiers, building owners at risk from insurer cladding exclusion rules

Australia's privatised building certifiers are worried over insurers’ moves to exclude liability for non-compliant cladding in the wake of the London building fire tragedy.

The Australian Institute of Building Surveyors, the peak body for Australia's privatised building certifiers, has written to members that some professional indemnity insurers were imposing 'onerous exclusions' to policies around non-compliant cladding, The Australian Financial Review reported.

"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 emailed letter said. 

"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."

Melbourne-based insurance broker BRIC, which advised the institute to send the email, noticed its first policy with an exclusion clause in February. 

Since June, it has had to find alternative insurers for 12 clients whose existing insurers had refused to remove exclusion clauses.

The exclusion clauses pose a major risk for professionals such as building surveyors and engineers, BRIC broking manager Darren Pavic was cited by the AFR as saying.

"If a policy does not respond to a claim, the firm and the individual practitioner will be left to defend the matter using their own resources," Pavic said.

Flammable cladding has been a major issue since London's Grenfell Tower tragedy. 

The Victorian government has set up a the taskforce to speed up the investigation into the use of flammable cladding on high-rise buildings in the state.

It has also prompted a revision of Australia's National Construction Code. 

The move by insurers has also been prompted by the fire at Melbourne’s Lacrosse building in the Docklands.

Moves by state governments, such as in NSW, and by developers and owners themselves to determine the safety of their cladding are likely to lead to a raft of claims over rectification costs, said Scott Higgins, a partner with law firm Mills Oakley. 

With developers likely to have confidential dispute resolution mechanisms that would have them resolve problems privately, bodies corporate were more likely to take certifiers to court, Higgins said.

"I'd be very surprised if we didn't start to see them in the next six months," he said.

Erik Adriaantse, the interim chief executive of industry body Strata Community Australia, said news of the exclusions was a "positive" development.

"It's likely to put pressure on certifiers to get it right," he said.

Higgins added that the move by insurers could influence the appetite of building owners to rectify them.

"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 costs," he said.