| Professional Indemnity Insurance (PII) has long been a problematic area for many professional services firms. It is typically expensive and with less and less providers in the market, can be difficult or even impossible to obtain. For example, up until 2014 solicitor practices all had to renew their policies on 1 October each year. This led to a significant rush in the months leading up to this date with insurers unable to handle all enquiries and consequently cherry-picking cases leaving some practices unable to obtain cover at all. This can have disastrous consequences for professional services firms including those in the architectural sector. Typically architects are members of the Royal Institute of British Architects (RIBA). RIBA requires that its members hold suitable insurance to cover potential liabilities arising from negligence or breach of contract associated with professional services. Although PII cover is generally obtainable in this sector and is not suffering the same issues as the legal sector did in 2014, the average cost across firms of all sizes increased from £16,876 in 2018 to £32,926 in 2022, virtually double in just five years. Cost increases aside, there is an emerging problem which needs to be addressed, that being exclusions. The Grenfell Tower fire in 2017 was the deadliest structural fire in the United Kingdom since the Piper Alpha oil-platform fire in 1988. The subsequent enquiry found that the Aluminium Composite Material (ACM) Cladding that had been used had a highly combustible core. This, together with combustible insulation boards and air gaps between them, enabled the blaze to take hold and spread in a very short space of time. ACM cladding has been used in the industry for a significant amount of time and was very popular due to its precise flatness, its light weight and variety of surface finishes and colours. Consequently, there remains many buildings constructed in recent years with this type of cladding. As a result, there is potential for many claims against Architects PII cover not just if there is another tragedy like Grenfell, but also if the cladding requires precautionary replacement. PII cover is on a claims made basis, i.e. the insurer in place at the time a claim is made provides the cover for a claim, not the insurer who was in place at the date of the event giving rise to the claim.
It is becoming increasingly common for PII policies to include some form of restriction or complete exclusion of cover in relation to fire safety and this trend is set to continue. In 2022, RIBA’s Business Benchmarking canvased their members with 49% reporting exclusions on policies in respect of “cladding/insulation combustibility in general” and 44% for “fire safety (general)”. Furthermore, many of the RIBA members reported that these exclusions were being included for the first time at renewal, with 40% accepting the fire safety exclusion for the first time and 28% accepting the cladding exclusion for the first time. If an Architectural practice receives a claim, or multiple claims, in respect of such a matter and has been unable to secure the appropriate cover, the claim will fall to the company to pay which will likely be significant and could be detrimental to the going concern of the business. For Architect firms that have undertaken multiple projects using ACM cladding, this potential exposure can feel like looking down the barrel of a gun and it is advisable to seek professional advice at the earliest possible opportunity to protect the business. It should also be highlighted that, despite not having the same regulatory requirements to have PII cover, similar issues are being experienced across the building sector and if any of the above is applicable to you, we would always recommend early advice. How can we at KRE help? If you have concerns we are happy to meet and advise generally, without obligation or cost, to guide the directors as to what specifically they should be considering and the options available. Please get in touch. | 
