The Professional Indemnity Insurance (PII) market can be seen as reactive in many ways. Historically, we have seen this with war/terrorism, the millennium bug (otherwise known as Date Recognition which never materialised as an issue!) asbestos and more recently cladding. One of the more recent market reactions has been insurers' approach to the External Wall Fire Review process and subsequent EWS1 forms.
By way of background, this External Wall Fire Review process requires a fire safety assessment to be conducted by an adequately qualified professional. An assessment is required, potentially, for any building and is valid for five years. A pro-forma EWS1 form will, at the request of the building owner, need to be completed by a professional which will effectively certify whether or not the external walls or facades contain combustible materials and whether or not remedial action may be required. If the EWS1 form confirms the external wall system is adequate from a fire safety perspective, the valuer can then rely on it to complete the valuation.
Given recent events in UK construction, we are seeing these forms become more commonplace with contractors and construction professionals often being asked to sign them. Whilst the majority of PII policies will respond to claims arising out of the signing of an EWS1 form, there are an increasing number of insurers imposing exclusions and restrictions at renewal. It is also worth noting that we have seen RICS impose restrictive language on the same EWS1 forms within their 2020 PII wording. Given the claims made nature of PII policies, this would mean that retrospective forms would also be affected should restrictive or exclusionary language be applied at renewal. There are a number of versions of an EWS1 exclusion in the PII market at present but a sample PII exclusion is as follows:
Notwithstanding anything contained within the policy wording to the contrary the Insurer shall not afford any indemnity in respect of any Claim or for any loss, costs or expenses arising out of, in connection with or in any way involving:
a) the Insured's reliance upon any EWS1 form (and/or any revision thereof), or
b) the Insured's completion of any EWS1 form (and/or any revision thereof)
We would expect this trend to continue as long as EWS1 forms continue to be used within the construction industry. The onerous nature of the form is providing enough concern for insurers that they feel it prudent to limit their own liabilities arising out of any claims. The form itself states that “This review is for the sole and exclusive use of the client organisation named below. No responsibility is accepted to any third party for the whole or any part if its contents”. However, it would appear that this is not enough for some insurers who still foresee the potential for significant claims activity should one of their insureds sign such a document.
From a risk management perspective, the best advice would be to resist signing of the EWS1 form altogether. If that is not an option, proper records of these forms should be maintained including beneficiary, project details and information around the review which led to the form being signed. This is a question that insurers will inevitably begin to ask and an ability to provide the full and proper information will help to resist restrictive or exclusionary EWS1 language on your PII policy. An insured might also consider their own competencies in having issued these forms. The “levels of expertise“ are described in the form itself and your insurers are going to want to understand how these have been satisfied by any signatory. As ever, there will also be questions around what your contract says – is there any sort of financial cap on liability that would also carry through?
Lockton can help guide you through this process and talk to you about the additional information required. We will of course look to resist any restriction in cover were possible armed with the right information but it may well be that it is unavoidable if the current trends are to continue. Get in touch with us at constructionpii@uk.lockton.com or visit us at www.locktonconstructionpii.co.uk to discuss this further.