At the start of the month the International Underwriting Association (IUA) published its “Building
Safety Fund Cladding and Fire Safety Limited Exclusion and Aggregation Clause”. To save time let’s just refer to it as the “IUA Fire Safety Clause”.

The dangers of unsafe cladding and the associated issues facing the construction sector are well
known. There is a recognised need to encourage and enable the removal of unsafe cladding without further delay. It is a life and death issue. That makes it all the more frustrating that the IUA Fire Safety Clause appears so inadequate in a number of respects.

Much has already been written about what the IUA Fire Safety Clause does, or at least is intended to
do. It followed the IUA survey of “members” (for which of course read insurance companies) in September 2021, which revealed a “cautious willingness” to provide insurance for fire safety risks on new projects to remove defective cladding. In a nutshell the IUA Fire Safety Clause is intended to provide cover for “…any actual, direct loss, cost, expense or defence costs…” incurred by the policyholder in the provision of fire safety design services for the rectification of defective cladding where such losses occur “…as a direct result of any negligent act, negligent error or negligent omission…” Two major problems immediately stand out.

The first problem is that, even if we accept the Clause at face value, there are a multitude of scenarios
that appear to fall outside of this wording. For example:

• The wording is expressly stated to apply only to cladding claims and fire safety claims that arise from works “fully funded by the Building Safety Fund.” The Building Safety Fund only applies to replacement cladding works in residential buildings over 18m tall (about six storeys). It therefore does not apply, and so the Clause presumably does not apply, to: (i) non-residential buildings; (ii) buildings less than 18m tall; or (iii) any other fire safety works apart from the removal and replacement of cladding.
• It seems to follow that the wording would not apply to any works carried out by or on behalf of Developers as a result of that Developer signing up to the Government’s much lauded “Pledge Letter”. Not only does the Pledge apply to works to residential buildings of 11m and above (i.e. less than 18m), it is also an express condition of the Pledge that the relevant buildings be withdrawn from the Building Safety Fund (and if necessary that the Fund be reimbursed). This would seem to take any works carried out pursuant to the Pledge outside of the ambit of the IUA Fire Safety Clause.
• It also seems to follow that the wording would not apply to defective ACM cladding, given that the Building Safety Fund (as opposed to the ACM Funds) only applies to unsafe non-ACM cladding. Neither the IUA Fire Safety Clause or the Explanatory Note which accompanied its publication addresses this point, and so it is not clear whether this is deliberate or simply an oversight on the part of the draftsman.
• In a wider sense, the wording does not appear to cover any defective workmanship, but rather any cover would likely be limited to the design services being undertaken by the policyholder. This is potentially problematic; anyone with any knowledge of cladding claims will appreciate the frequent “design v workmanship” issues that can arise.
• And of course the elephant in the room, insofar as the wording is intended to provide cover for rectification works, it does nothing to address the fundamental remaining problem of insurance cover for historic cladding claims against those contractors (and others) who are held responsible for the installation of unsafe cladding.

The second problem is whether the IUA Fire Safety Clause even does what it claims – i.e. is it really providing the extent of cover that some of the headlines would have us believe? The practical reality seems to be plainly not. In particular:

• Any relevant policyholder (i.e. a professional carrying out works of this nature in the first place) faced with this wording might be forgiven for asking why they would not be covered for such activity in any event? The answer is because of the extensive limitations that have been placed on such policyholders by the insurance market, limitations which are largely replicated within this wording.
• Any right to indemnity under the Clause is also expressly subject to a number of wide-ranging conditions (mostly around risk management), but the implementation of various of such conditions will be outside the control of the policyholder (undertaking design services). This clearly creates the risk that any insurance might be inadvertently invalidated through no fault of the “innocent” policyholder.

Some of these points might be viewed as pedantic, but we are operating in a market in which insurance companies routinely take any and every point (good or bad) to decline cover. It is unrealistic to expect that insurance companies will not look to exploit the limitations of the IUA Fire Safety Clause when considering cover.

The objective of the IUA Fire Safety Clause may be laudable, but when faced with the self-congratulatory headlines of the insurance market, and the Government Levelling-Up Secretary proudly announcing that this new clause will “help make homes safer”, it is difficult to escape the conclusion that there is a political element to all of this. Let us not forget that as recently as April 2022 in the parliamentary debate on the Building Safety Bill, there were MPs calling for the insurance sector to be forced, via new legislation if necessary, to pay for all necessary cladding remediation works. That suggestion will have terrified the insurance sector, and this Clause is the sticking plaster to stop that from happening by being seen to do something / anything.

The sad reality is that IUA Fire Safety Clause is not fit for purpose. Time will of course tell, and I hope I am wrong, but I fear that the Clause may prove to be, as my old grandad would have said, about as much use as a chocolate teapot.

Chris Dunlop is a Partner at Wynterhill LLP.

This post is intended to provide guidance of a practical nature but does not contain legal advice or advice as to what action you should or should not take specific to your insurance needs or those of your business, or with regard to any particular situation.