News eDaily20 Jul 2018

Australia:Building cladding issues hit professional indemnity insurance

20 Jul 2018

Australia's clading crisis has hit licensed building certifiers and surveyors, with professional indemnity premiums soaring as insurers seek to limit their exposure to cladding-related claims.

Licensed private certifiers and surveyors, who assess buildings for their compliance with the Building Code of Australia and issue certificates of occupation say the premiums are rising to unsustainable levels and could push professionals out of the industry, and even bring development to a halt, reports The Australian Financial Review.

For example, Sydney-based Blackett Maguire + Goldsmith this month found the premium for its annual professional indemnity insurance policy had doubled from A$70,000 ($51,500) last year to more than A$120,000. The firm is one of the largest building certification companies in NSW.

Sydney headquartered construction, real estate investment and development company, in March took its consultants to court to recover recladding costs of Melbourne's Royal Women's Hospital, alleging breach of contract by building surveying consultancy Philip Chun and director Shane Leonard, for failing to notice that the design documentation included the use of combustible material and for failing to make it aware that the cladding did not comply with the building code. Lendlease is thought to be claiming about A$8 million to cover the recladding cost. The case also alleges failures by architects DesignInc and Woodhead, fire engineer Exova Warringtonfire and facade contractor Minesco.

More such cases are seen as likely –even when certifiers and surveyors were not liable –and the impact on insurance premiums could put the professionals' ability to practise at risk.

Insurance broker Darren Pavic agreed that the current round of premium renewals was expensive.

"The increases are large," said Mr Pavic, of national brokerage BRIC. "On average they would be going from less than 1% of a firm's income to closer to 1.5% to 2% of a firm's income."

Another risk for building certifiers and surveyors is the growing push by insurers to insert exclusions around cladding-related claims into their policies. This is a further risk for practitioners, as the state licensing bodies require PI policies to be exclusion-free and could declare them in breach of licence conditions if they accept a policy with a cladding-related exclusion.


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