Professional Indemnity Insurance Exclusion Clause Wording – Has the Pendulum Swung too Far?
Is the PI insurance industry now at odds with the National Construction Code (NCC) and its performance based approach.
As the saying goes, "no sin goes unpunished" and that is where the construction industry now finds itself with PI insurance. After years of poor practice, prolific product substitution and poor site governance, the insurance industry has had enough. Those that are still offering PI cover are doing so at a great cost, with broad sweeping exclusion clauses that don’t just capture the obvious risks, but in the process in many cases encroach into more broader elements of the building envelope.
But has the pendulum swung too far the other way and does common sense and clear wording now need to enter the field. We now have exclusion clauses written so broadly and in many cases undefined that on broad interpretation are at odds with the NCC itself. This has forced designers, engineers and certifiers to depart from the practical performance solutions approach that has delivered better performing and less costly buildings in favour of what insurers are prescribing. The question has to be asked is that the intention of the underwriters or is this an unintended consequence they have not thought through?
In a recent interview with Fire Safety Practitioners Association TV, Neil Savery, CEO of the Australian Building Codes Board, emphasised that the National Construction Code was and has been since the early 1990’s a performance base code and that the performance based environment is important. As buildings are becoming increasingly complex, it is becoming difficult to write regulations to meet the complexity at the same time keep pace with the rate of innovation in the industry.
The code is outcomes based rather than prescriptive, allowing for performance based solutions. Mr Savery went on to say, "The NCC is focused on what you are trying to achieve rather than the manner in which you are trying to achieve it".
Performance solutions are at the cornerstone of this and the code is very specific with respect to their use. It would appear that the PI insurance industry is overriding the NCC through broad exclusion wording, forcing practitioners in some cases to only use the deemed to satisfy path which often introduces greater costs and a loss of efficiency and functionality.
While policies on the one hand require practitioners to comply with the NCC, many exclusion clauses subsequently override this statement by excluding directly or indirectly the use of a performance solution through broad terminology, reference to specific materials and or specific deemed to satisfy references.
Scott Gibson, Managing Director of Kingspan Insulation Asia Pacific has enlisted experts from Kingspan’s global head office to try and unpick the Australian PI landscape. Mr Gibson concluded that while trust across the whole supply chain is low and insurers need to price in risk, some of the insurance exclusionary language reviewed was presented as being too broad, loosely worded and needed to be tested. This can be done by either greater questioning of the underwriters intent by the policy holder or if that is not forthcoming, the policy holder seeking external legal opinion of their policy wordings to give them greater confidence of how the policy would be interpreted in a court of law.
While it is understood that the PI insurance industry may feel the need to exclude known elements that present unacceptable risk, for example, combustible aluminium composite panels (ACP) used in wall facades, they need to be more defined in their wording and context.
If the risk is determined to be on the outside of the building envelope then be specific to the outside element of the building envelope for instance. Mr Gibson mentions that the use of terms like External Wall are far too broad as it could be determined to include the whole wall structure, including the inside lining or just the external side adjacent to the ACP. Mr Gibson continued, "Do they now mean to include the stud frame assembly bulk insulation and plaster board on the inside of the masonry wall as well? I think not, but that is how it could be interpreted and in some case is by some practitioners in the absence of clearer wording or clarity by the insurer or their insurance broker".
David Roberts heads up Kingspan’s Insurance division globally and is a 35 year veteran of the industry, representing global brokers and Insurers. He states that, "It’s all in the policy definitions. Policy holders need to read their whole policy and understand their exclusions carefully and seek clarification. This can be done by asking via their broker, where terminology is broad and clear definitions are absent in terms of policy interpretation, what is the underwriters intent of these words, seek that clarity and do not be afraid to ask. Be persistent in seeking an answer".
It is your right to ask the question and it is incumbent upon your broker to obtain that clarity and certainty so the policy can be clearly interpreted. We in the industry are like many and are guilty of doing the cut and paste from time to time and sometimes both the context and functionality of policy wording can be lost in the process.
David goes on to say, "At a global level we are seeing insurers begin to re-enter markets. More recently in Australia, I note that a Lloyd’s of London Syndicate has re-entered the PI market with an exclusion free policy for building certifiers. My advice to you is start testing your existing policy and its wording through your broker and start testing the market again if you are unhappy with the response".
Conclusion:
The National Construction Code is a performance based code and promotes the use of performance based solutions as a means of demonstrating compliance.
Practitioners unsure about their policy wording have a right to ask for clarity and clear definitions.
The PI Insurance market is beginning to free up and practitioners should be testing the market again.
For more information on NCC 2019 and Professional Indemnity insurance, contact our Technical Services team on 1300 247 235 or email technical@kingspaninsulation.com.au .
