Industry News | Plus Indemnity

Non-Complying Building Products and Professional Indemnity

Summary of content Risk exposure from the specification and certification of non-compliant building products will be a focus for professional indemnity insurers in the wake of recent events. Since the fire in the Grenfell Tower in London the issue of non-complying building products has been in the news. This is not to say that the issue has not existed for some time – note we had a multi-story apartment fire which was related to façade panels in the Lacrosse building in Docklands in Melbourne in 2014. We also had news stories of asbestos content in ceiling panels (apparently imported from China) at the new Perth hospital; we have had a product recall on Olsent and Infinity branded electrical cable – originally imported from China. More recently there have been reports of glass balcony panels which have spontaneously exploded – leaving balcony areas unprotected and with glass falling to the street below; and similar problems have been reported with shower screens. It is believed that the failures are linked to imported products and poor manufacturing in that the glass material contains nickel sulphide. Following the fire in the Glenfell building in London, the UK authorities have begun a process of inspecting and testing other buildings which have similar cladding products installed. As at the end of June, reports have indicated that 120 high rise buildings in 17 areas in the UK have failed tests for cladding fire rating. In Australia, Prime Minister Malcolm Turnbull has asked premiers and chief ministers to urgently audit their high-rise buildings. In Victoria, authorities are auditing about 600 properties and the Mayor of Melbourne says that fire concerns at 17 Melbourne buildings with non-compliant cladding have been a focus. In NSW the Govt has foreshadowed an announcement and inner city councils have already commenced work to identify buildings that should be audited. News reports have indicated that there could be 2500 buildings in NSW that have flammable cladding similar to that on the Glenfell tower. It has also been reported that the Building Minister’s Forum met at the end of June to discuss a national strategic response to risks from the non-compliant installation of building products. An announcement is expected on this shortly. …increased scrutiny by underwriters … focused risk assessment questions and … standard endorsements (relating to non-complying building products)… So how does this affect Professional Indemnity Insurance Coverage? It should not be a surprise that insurers will be keen to understand or limit their exposure to what will be very significant claims arising not only from property damage and personal injury associated with fires and injury associated with non-compliant building products but from the economic loss associated with the need to remove and replace dangerous non-compliant products. Accordingly, for risks/occupations which are exposed to the potential of such claims, there will no-doubt be increased scrutiny by underwriters with perhaps some focused risk assessment questions and perhaps some standard endorsements (relating to non-complying building products) – especially for D&C risks and for building certifiers. Some insurers may decide to reduce their exposure by writing less of these risks – either by risk selection or by increasing rates – or both. While the problem has obviously been there for some time – it usually takes a disaster or a significant loss event to jog the market, like the regulators, to respond. Do you need to change what you do? Brokers should be conscious of risks your insurance clients have due to non-compliant building products which have been used in buildings designed or certified by your clients. When preparing insurance submissions for building designers (including D&C risks) or for building certifiers especially, enquiries should be made of your clients in preparation for formal insurance submissions – including a review of past professional services and projects which may potentially involve non-compliant building products. Further, insurers may be looking to be assured of established risk management practices which have been implemented by the proposer to address this exposure.

“Incident” logging and reporting – Professional Indemnity Risk Management

Company News, Industry News, Professional Indemnity, Risk Management / PI-Plus

Summary of Content When it comes to awareness and notification of potential claims in PI insurance, a solution is needed. In an organisation, Senior Management does not always know of problems and issues at the coal face. An incident register could be a powerful tool to assist in monitoring risks, managing exposures and improving service risk quality, and could be as simple as a spreadsheet stored in a shared drive. Senior Management does not always know of problems and issues at the coal face… Many large organisations have in place a system of incident reporting – whether that is to do with complaints recording or recording of compliance breaches for ASIC regulated entities (with which all brokers, as Financial Services Licensees, will be familiar) – or simply recording for service quality monitoring – or as a way to capture early indications of potential future claims and to log details of those at an early stage. Hospitals and health care institutions have had such a system of incident recording for many years. It is not uncommon for these incident reports to be regularly provided to the malpractice insurer of such institutions as a way of registering and notifying “facts which might give rise to a claim” (Section 40(3) of the Insurance Contracts Act). Such incident recording used to be paper based – but many large organisations have employed IT solutions to simplify and make this process more efficient and manageable – and in the process to make the data more accessible and useful by allowing it to be more easily measured, analysed and monitored. How regularly have insurers had to deal with late notified claims under Claims Made policies (PI, D&O etc)? From discussions with brokers this is apparently more common than it should be! Often an incident will occur (e.g. a disgruntled client, an accident at a real estate managed property, an allegation etc) and it will be managed and regarded as a minor matter or without foundation and for what ever reason no notification is given to the PI insurer. A year or two later (sometimes after insurers have changed) a writ will arrive and insurers will discover that this was a known circumstance – and a coverage dispute will ensue! What if such insured had an incident recording system (preferably on their intra-net) and those incidents were regularly reviewed by senior management (or the internal risk manager) and provided to insurers with insurance renewal submissions. While this may reveal that some risks may not be the quality that is superficially presented in a renewal submission, it may serve to limit or eliminate late reported claims and non-disclosure issues. Further, it will assist the insured to monitor its risks and to manage its exposures and to improve its service quality and risk quality so that claims do not occur or escalate or be repeated. Would it be worth it? An Incident Register does not have to be difficult or complex. It can be as simple as a spreadsheet kept on an intranet or cloud share drive – (this could be supplemented by copy files of correspondence etc kept in related share drive folders) – or it could be an Access database file or a more specific application associated with the insured’s main IT system. It should always, however, be able to link to documents/files (emails, correspondence, etc) which are related to the incident and be able to be accessed and monitored by the internal risk manager and senior managers responsible for oversight of quality, compliance and customer service – and for completing insurance applications. Ideally it should raise an automated flag (e.g. email notification) for each new entry or alteration. This will facilitate appropriate monitoring and management action. Such a system would not only improve risk quality by better managing risks, it will reduce potential coverage disputes and assist brokers in collating risk information at insurance renewal. Further, if the client is not involved in an un-necessary coverage dispute then neither will the broker be! What can we take from this? An easily accessible and centrally monitored Incident Register – ideally accessible on the company intra-net – is a simple and practical solution which can be used to not only monitor problems that arise but will assist in providing suitable and timely disclosure to insurers.

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