Limitation and the UK Building Safety Act: new claims and what insurers may have missed
This article was co-authored by Phoebe Penman, Trainee Solicitor, London.
The Building Safety Act 2022 (the Act) became an Act of Parliament on 28 April 2022. It brings with it the most wide-ranging changes to building safety that the UK has ever seen. Parts of the new Act will come into force as soon as 28 June 2022.
Of particular note is Section 135, which dramatically increases limitation periods for claims to be brought in connection with unsafe buildings. The Act does this by amending key parts of Limitation Act 1980, the Defective Premises Act 1972 and the Building Act 1984. In this article, we consider the Act’s impact on insurance and how insurers may best address any new or revived claims.
Defective Premises Act (DPA) – not just cladding
In one of the Act’s most widely publicised amendments, limitation periods for claims under the DPA will be extended for works already completed from six to 30 years, and for work completed in the future from six to 15 years. This extended limitation can be used by tenants to sue a contractor, employer, architect or sub-contractor directly as a result of defects in a dwelling that make it ‘unfit for habitation’. This extension to limitation will come into force later this month.
A key legal case in this area, Rendlesham Estates v Barr Ltd , found that for a dwelling to be fit for habitation under the DPA it must be capable of occupation "without risk to the health or safety of the occupants" or "without undue inconvenience or discomfort to the occupants’ at the date of completion". Minor defects to buildings are unlikely to meet the threshold set out in this case.
Insurers will wish to note that the extensions to limitation are not restricted to the scope of safety matters such as combustible cladding. It is therefore possible that new claims will arise under the DPA for historic building failings that concern unrelated defects.
Under the Act, where an organisation is liable under the DPA, Building Liability Orders (BLOs) can be made against those that have a controlling interest in the front-facing organisation; making them jointly and severally liable. These orders, under Section 130 of the Act, are designed to be a new quick alternative remedy to litigation. Importantly, those behind a company can still be subject to a BLO even if it is dissolved under Section 131 of the Act.
This provision ultimately acts as both a sword and a shield: a sword to pierce the corporate veil, but a shield to other contractors - ensuring they are not held liable for historic problems.
Alternatively, BLOs can also be brought under the new Section 38 of the Building Act. S.38 provides a cause of action for ‘physical damage’ caused to a building by a breach of building regulations in place at the time the work was undertaken. S.38 will allow occupiers to seek compensation from those responsible for the damage. This cause of action also has a 15 year limitation period under the new Act.
Insurers will wish to note that there is debate as to whether damages under the Building Act extend to ‘financial losses’ that are unconnected to physical damage. We anticipate that insurers consider this issue in detail should claims arise under the new Building Act provisions.
Practical tips for insurers
Understandably much of the current focus on building safety pertains to cladding issues following the Grenfell Tower disaster. However, it is worth bearing in mind that limitation issues will apply to other types of building defect; only time will tell as to the prevalence of these other issues:
- These new causes of action and extensions to limitation will be of concern to insurers where circumstances were previously validly notified to policies, which have long since been considered to be closed matters. Claims that had previously been considered to be statute-barred may now have several additional years in which to be brought. Special attention should be paid to buildings completed between 1992 and 2010 as these would be within 30 years of the Act coming into force, but outside of any existing contractual limitation periods.
- The new causes of action against product manufacturers under s.147-151 of the Act should be borne in mind by insurers when considering issues of liability for defective construction products.
- It will undoubtedly be challenging to access and obtain quality contemporaneous evidence to support these potentially historic claims, which could be the key to confirming the as-built condition of impacted properties. With that in mind, insurers will wish to consider the defences provided by s.135(5) of the Building Safety Act that allow a court to dismiss a claim, otherwise statute-barred, if a defendant’s rights under the Human Rights Act would be breached.
- Insurers should bear in mind coverage issues that could arise as a result of this new landmark legislation. Notifications should be considered alongside exclusion wordings in policies. Insurers should also consider whether claims were notified prior to certain exclusions coming into force, in turn affecting their validity.
- Insurers should be wary that once BLOs have been made and investigations or remedial works commence, other non-cladding issues could also come to the surface. Consideration should be given as to whether the original notification was broad enough to cover these non-cladding issues.
The Act will have a profound impact on those active in the construction insurance market. Insurers will wish to remain alert as other significant parts of the Act are brought into force over the next 18 months.
Insurers should be alive to parties issuing protective claims and the possibility of parties passing those claims down the supply chain. It remains as important as ever for insureds and insurers to engage with the issues presented in these disputes and to be aware of the detailed provisions of the new legislation.
Read other items in Professions and Financial Lines Brief - July 2022