The repercussions from the Grenfell Tower fire have already been far reaching and the fallout seems set to continue.
Since the disaster, buildings throughout the country have been checked for similar cladding to that blamed for the rapid spread of the Grenfell Tower fire, some of which have been removed or the buildings evacuated. Fire and building regulations are also almost certain to change as a result of the fire and Corporate Manslaughter charges are being considered against the owners (Kensington and Chelsea Council) and the management company.
The fire is believed to have been caused by a faulty fridge freezer on the 4th floor and then spread rapidly through the building. The rapid spread is primarily being blamed on the external cladding, but there are also reports that the removal of fire doors and unprotected gas pipes were a factor. Most of the attention has been around the composite panels that formed the external cladding and whether they were suitable for a high-rise block, complied with regulations and if the regulations themselves are rigorous enough. We are likely to have to wait for the outcome of the Public Inquiry before all the facts emerge, although it does seem clear that there are flaws in the system whereby the authorities test and authorise the use of building materials in relation to fire prevention.
So far there hasn’t been much in the mainstream media about the insurance on the block, but it has obviously been a hot topic in the insurance press and a fair amount of detail has been released. We know that Norwegian insurer, Protector Forsikring took over the insurance in April, apparently undercutting the previous insurer by over £200,000. They have reserved the claim at £50m of which £20m is for the building, with the remainder for liability and temporary accommodation costs, although much of the risk was reinsured, with Munich Re likely to take the brunt of the loss.
The insurance claim could be complicated with a number of potential issues, particularly what the insurers were told about the external cladding, with the possibility that this could be an early test case for the new law on ‘fair presentation of risk’.
The duty of disclosure for business insurance was redefined last year when the Insurance Act 2015 came into force and requires a ‘fair presentation of risk’ including the obligation to ensure the accuracy of information. ‘Information’ is what the business knows or reasonably ought to know and includes the need to make reasonable enquiries within the business, as well as the likes of third party consultants. What the building owners knew about the type of cladding could be crucial.
If the insurers were given the exact specification of the cladding, then (subject to the caveat of data dumping), all should be ok, as the insurers would be expected to have the expertise to know if the panels were acceptable to them, especially as they would have almost certainly surveyed the property before cover was placed. The caveat about data dumping refers to a rule where you are not allowed to ‘hide’ relevant information within a mass of other information.
If there was not a fair presentation of risk, various remedies will be available to the insurer, with the ultimate sanction of avoiding the policy altogether. Time will tell if there are any issues.