Concrete: the new cladding crisis. Will insurers foot the bill?
Unhappily coinciding with the start of the school year, reinforced autoclaved aerated concrete (RAAC) hit the headlines recently with the government ordering the closure of over 100 schools, many of which have been deemed at “imminent risk of collapse”.
What is RAAC?
Between the 1950s and 1990s, the lightweight and “bubbly” concrete alternative was commonly employed in the construction of public buildings, principally used in flat roofing but also in floors and walls. Quick to produce and easy to install, RAAC was a cheaper alternative to concrete but, fatefully, its estimated 30-year lifespan and susceptibility to water ingress means that buildings constructed with it are now liable to "collapse with little or no notice".
Concerns about RAAC are not new. In 2016, an RAAC-related masonry collapse occurred at a school in Edinburgh and in 2018 the collapse of a school roof in Kent was attributed to failing RAAC. In fact, safety issues with ageing RAAC were reported as far back as the 1980s and 1990s. According to the Department for Education, however, the issue has only now come into the fore following investigations this summer, whereby it was discovered that RAAC previously considered as low risk actually turned out to be unsafe.
Where is RAAC?
Whilst predominantly affecting non-residential public buildings such as schools and hospitals, RAAC may also be found in local authority constructed housing or public buildings which have since been converted to housing. It is inevitable that some RAAC affected buildings are now under private ownership.
Assuming that the government will pick up the tab in relation to the public sector, who will be left paying for investigation and remediation costs, and the associated liabilities, in the private sector, and will affected entities have any recourse under their insurance policies?
Lessons from cladding
The tragedy of Grenfell in 2017 triggered huge liabilities for landlords to remedy unsafe cladding present on their buildings. Whilst government assistance programmes have been available, they have been far from comprehensive and, as a prerequisite to funding, building owners have been expected to pursue all reasonable claims, warranties and insurance.
Building owners have therefore sought to recover costs and losses under building insurance policies or against negligent developers / contractors, who have in turn looked to their professional indemnity (PI) insurers.
Given the nature of cladding claims (primarily being the cost of remediation works to make the building fire-safe), many Claimants have sought to recover under latent defect (LD) policies, which provide cover for inherent structural defects as opposed to traditional buildings insurance, which typically provide cover in respect of material damage perils such as fire, flood etc.
Cladding insurance claims, however, have been fraught with difficulties. Common obstacles to recovery in LD policies include:
- A requirement for the present repair to be a requirement of Buildings Regulations applicable at the time of the construction;
- No “imminent danger” in properties that have not been evacuated;
- Economic loss exclusions meaning that losses other than the costs or repairing/replacing defective cladding are not covered.
In PI claims, issues also arise. Proving negligence can be challenging in circumstances where developers were following known and accepted practices at the time. Even where liability is established, developers may face the usual coverage issues, including problems with notification and potential exclusions.
However, in the few cladding cases that have reached trial, there has been success for building owners affected by remediation costs.
Insurers were ordered to pay the entire cost, c.£10m, of repairing fire safety failings (which included Grenfell-style cladding) in Manchikelepati and Others -v- Zurich Insurance [2019] EWCA Civ 2163, which concerned a new home warranty.
The Claimant also succeeded (this time against the building contractor) and was permitted to recover remediation costs and waking-watch costs in Martlet Homes Ltd v Mulalley & Co Ltd [2022] EWHC 1813 (TCC). This was a professional negligence claim where the court deemed installation by the Defendant defective and non-compliant with Building Regulations. We do not know how the Defendant’s PI insurer dealt with the claim, but with a £8m damages figure, we imagine that Defendant hoped it would be engaged.
Application to concrete
The similarities between RAAC and cladding claims, both of which require large scale remediation for building materials that were not strictly “unsafe” at the time of installation, mean it is likely that cladding-style disputes will also materialise in instances of RAAC.
Given the historic nature of properties built with RAAC, however, it seems less likely that LD policies will apply. Where they are, claims will no doubt face the same challenges as cladding claims. Such challenges will be even greater where the introduction of blanket exclusions, coverage restrictions and write-backs post-Grenfell, impact broadly upon claims relating to building materials which were considered safe at the time of installation.
An absence of LD cover may lead building owners to seek creative ways of claiming for RAAC losses under traditional buildings policies. In the case of building collapse where RAAC is present, it will be a matter of expert evidence on causation to determine whether such event is within the scope of cover of traditional building insurance.
Recent changes to UK building safety laws under the Building Safety Act 2022 (BSA) will also be relevant to RAAC claims. The BSA has drastically increased the exposure of developers and contractors to claims by extending the limitation period in respect of works completed prior to the Act, from six to 30 years. Although the original building construction is unlikely to fall within this period, the liability can also be triggered by subsequent renovations.
Whether RAAC is likely to be present or not, it is also feasible that policyholders will now be subject to increased scrutiny from insurers on renewal with regard to the presence of RAAC, facing additional obligations in terms of inspection and declaration.
What should policyholders do now?
Whilst RAAC issues are not expected to be as widespread as those arising from cladding, disputes are inevitable and insurance claims involving RAAC will be protracted and complex.
Now is the time for property owners to seriously consider whether any of their building assets may have RAAC and check the provisions of any insurance policy to assess cover if so.
Similarly, contractors and developers should consider the need to notify PI insurers if they are aware of work completed which involves a building identified as having RAAC.
Fladgate advises policyholders on coverage issues and represent policyholders in claims against insurers. If the team can be of any assistance to your business, please get in touch.
