In this chapter of our Annual Insurance Review 2020, we look at the main developments in 2019 and expected issues in 2020 for construction.

Key developments in 2019

Perhaps unsurprisingly, the consequences of the Grenfell Tower fire have continued to affect the construction industry. With the market continuing to harden, and those construction professionals with actual or potential exposures to cladding finding it challenging to obtain renewal terms, we have continued to see a large number of both claims and block notifications relating to cladding.

Claims against other professionals involved in cladding/construction projects (as opposed to the traditional claims against architects and design & build contractors), have increased. High-profile contractor insolvencies have pushed claimants to seek damages from a wider range of construction professionals; further, the increase in the number and diversity of claims has caused a corresponding spike in recovery actions against those in the contractual chain.

Against this background, the decisions in Zagora Management v Zurich, and Herons Court v NHBC, provided some welcome relief to insurers of privately appointed approved inspectors. The decisions confirmed that such approved inspectors did not owe a duty of care under the Defective Premises Act and therefore would not be liable under that Act if they failed to identify defects when inspecting and certifying a property for Building Regulations purposes.

The decisions will also make it much harder for claimants, particularly third parties, to bring claims in tort against approved inspectors. Indeed, we have already seen a number of claims withdrawn as a result of these decisions and, unless claimants can overcome the high hurdles in pleading deceit or fraudulent misrepresentation, or the inspector has provided a collateral warranty (each of which may give rise to policy coverage issues), then insurers may be able to 'close the book' on these claims.

What to look out for in 2020

Brexit, and the uncertainty surrounding the UK’s future relationship with the European Union, will continue to impact the construction sector. Currency fluctuations and the historic weakness of the Sterling has caused, and will continue to cause, difficulties in tendering and will put further pressure on already tight margins. Contractor insolvencies may, therefore, continue to increase.

A number of reports and studies, including by the Royal Institute of Chartered Surveyors, have highlighted the potential for large drops in commercial and residential property values. If correct, we anticipate an increase in the frequency and severity of claims against surveyors and valuers.