ARB PII Update – Lexology
A week ago was the fifth anniversary of the Grenfell Tower tragedy, a reminder to all involved in the construction industry of the importance of safety in the design and construction of a development . Legislation has been thoroughly reformed to better govern building safety. Along with these changes, professional indemnity insurers are also reassessing risks, resulting in a hardening of the market that shifts greater liability onto professionals.
Under Standard 8 of the Code of Conduct for Architects, which forms part of the ARB registration process, architects are required to demonstrate that they have and will maintain adequate and appropriate professional insurance cover at a minimum level. The currently recommended minimum compensation limit is £250,000 for each claim, but this figure depends on the level of cover sufficient to meet any claim arising from professional negligence and differs from architect to architect.
With the hardening of the insurance market in recent years and the restriction of insurable risks by insurers, some architects are unable to obtain cover to meet the requirements of Standard 8 and find themselves in a difficult position. In response to developments in the insurance market, the ARB is reviewing the PII Guidance and opened its proposed revisions for public comment on May 16 and will close on May 4e July.
Some key changes proposed by the ARB include:
- Commonly known perils that are subject to aggregate limits, such as fire safety and coating claims, are recognized as acceptable coverage.
- Developments in the insurance market now see many insurers limiting claims to direct losses only, and coverage subject to this limit will be considered adequate for the purposes of compliance with the Code.
- Failure to obtain coverage for retroactive liabilities due to difficult market conditions will not be considered fault.
- With the liability period being extended to 30 years for eligible specific claims, the requirement to maintain liquidation coverage for projects completed for a period longer than the current six-year period seems disproportionate.
In response to the ARB’s review of professional indemnity insurance, the RIBA has established a working group and published its latest response to the consultation here. As RIBA President Simon Allford mentioned in his note to members last week, “While the reviews are essential for us to move forward as an industry, we need to get it right or we risk forcing smaller practices to close or move into the unregulated sector.”
Given the very difficult insurance market, this is an important step to ensure architects do not fall foul of ARB rules due to unavoidable coverage limitations. However, we agree that the proposed changes appear limited in scope. Perhaps a general qualification that compliance with insurance requirements of ARB rules is subject to the availability of insurance at commercially reasonable rates would be more appropriate.
This is a very important consultation which is open until 4e July. Make sure you have your say by responding to the consultation here.