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Defective Premises Act: Professional indemnity (PI) insurance considerations

Discover the implications of the Defective Premises Act (DPA) for construction professionals and their professional indemnity (PI) insurance.
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By James Bainbridge , 

Senior Vice President, Construction, Infrastructure & Surety

17/07/2022 · 3 minute read

The Building Safety Bill is now law and has included changes to the Defective Premises Act. What are the implications for construction professionals?

On 28 April 2022, the Building Safety Bill received royal assent and became an Act of Parliament. The 262-page Act is intended to “create lasting generational change” to the way UK residential buildings are constructed and maintained, following the Grenfell Tower tragedy in 2017. Changes to the Defective Premises Act (DPA) within the legislation will have a profound impact on the construction sector.

The Building Safety Act stipulates that there are clearly identified people responsible for safety during the design, build, and occupation of a high-rise residential building, and provides a gateway point system to ensure building safety regulations are adhered to at different stages of planning and construction. A so-called “golden thread” of digital information is required to record all the safety information pertinent to the construction and maintenance of a building.

The Act introduces two key changes to the limitation period for claims under the DPA. The limitation period for properties deemed unfit for habitation will be extended from six to 15 years, giving homeowners more than twice the amount of time to claim compensation for sub-standard construction work. 

It also allows homeowners to make retrospective claims for safety defects up to 30 years after completion of the building.

Compensation can be claimed from anyone responsible for the defective work, such as builders and other contractors, architects, or designers.

PI implications for construction professionals

These changes to legislation create a much wider exposure for companies involved in the construction and refurbishment of residential projects and, in particular, the extension to the limitation period is likely to raise considerable concern to insurers and the insured alike. For instance, insurers may seek to reduce their exposure to the full implications of the bill with the introduction of retroactive dates.

How can construction professionals reduce their risk profiles?

At the time of writing, the wider impact of the Act remains to be seen. However, construction professionals should continue to engage closely with their broker. Companies must take the opportunity to demonstrate their understanding of current market developments, as well as provide detailed information on their own robust risk management practices in place to mitigate insurer concerns. 

The state of the PI construction insurance market

As has been well documented the construction insurance market has gone through a clear transition, moving from a market that experienced stable or declining pricing for over a decade, to one in which premiums have been rising and elements of coverage becoming restricted, particularly in the fire safety and cladding space. 

The market is expected to remain challenging for the near future, with underwriters continuing to scrutinise each risk in detail, but there are ‘green shoots’ in terms of improvements in capacity and the slowing of rate increases. Insurers will expect detailed risk information, which will undergo in-depth review. As ever, early engagement, and quality information remain key to attracting optimum terms.

How to gain optimum insurance terms

Work with a broker who has expertise in both construction and in wider specialties, including the capabilities to respond comprehensively to the challenging economic and business risks faced by construction professionals. With their technical expertise, market knowledge, and close relationships with underwriters, brokers come into their own during a period of tightening insurance markets. In order to gain the most effective insurance for their projects, clients should start working with their brokers as early in the process as possible, to ensure their contractual structure reflects the optimal insurance programme design and enables sufficient time for terms to be negotiated.

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