Not a day has passed without reports concerning the horrific Grenfell Tower fire. The event itself was horribly tragic with loss of life, home displacement and huge emotional trauma for those involved
Such high profile events are particularly difficult to manage as an insured, insurer and reinsurer. Trying to establish what is true and false in the media coverage; the understandably emotionally driven calls for blame to be attributed; as well as the various potential entities and individuals involved looking to position themselves to minimise the risk of liability or involvement in investigations. In addition, there is the political pressure to ensure full insurance pay-outs.
When events of this magnitude occur the entities potentially involved and in the firing line naturally focus on what insurance cover they have available. It is in such circumstances that relationships and policy wordings are tested with lawyers appointed at an early stage guiding those involved. The early estimates of loss and pay-outs range from £200m to £1bn. What is clear is that the claims and (re) insurance position is not straightforward. We only have to look at Dubai where similar issues arose (thankfully without the tragic loss of lives) following the fire at the Address Downtown hotel on New Years Eve 2015.
The Norwegian insurer Protector Forsikring ("Protector") has written the property and liability insurance for the Grenfell Tower. It was the insurer's first major insurance deal in the UK, taking over the risk from Zurich Municipal. Protector won the tender to provide insurance to a tri-borough group of London councils, comprising Hammersmith and Fulham; Westminster; and Kensington and Chelsea. There are a number of issues of focus when it comes to insurance coverage:
Cause of damage. We are told that the fire started from a fridge freezer appliance; questions have been raised over the fire safety facilities in the building; then there is the issue of the cladding which allegedly acted as an accelerant to the fire aiding its ferocity, thereby worsening the overall effect. There are likely to be causation issues arising that will affect how the insurance cover responds and also potentially defective property and design exclusions which might limit the indemnity on the property insurance.
Non disclosure. There are reports that during the renovation works, between 2014 and 2016, the material supplied for the Grenfell Tower had a flammable polyethylene core, despite an architect's recommendation in 2012 to install fire retardant cladding. Further reports state that during the refurbishment work the cladding was changed to a cheaper version, with the original zinc cladding proposed being replaced with an aluminium type, which was less fire resistant. This raises the question, depending who knew what, that there could be non-disclosure issues. How these insurance coverage issues play out will depend upon whether the insurance policy(ies) incepted before or after 12 August 2016. This is when the Insurance Act 2015 came into force, significantly changing the old legal regime’s approach to the interpretation of and the remedies available in insurance contracts law. Therefore, the date of the inception of the relevant insurance contracts could have a significant bearing on insurance coverage.
Limits of indemnity. In cases such as this there is often a concern as to whether there are sufficient limits in place. If not, then insureds will be looking for other policies that might pick up some of the losses or other deep pockets, to off load blame and liability.
Scope of Indemnity. The Government has now announced that many highrise buildings have failed safety tests. Residents have been evacuated whilst decisions are taken on mitigation work. Would such work and the costs of finding alternative accommodation be covered by insurance? A great deal will turn on the wording of the policies that might be affected or called upon. Some reports state that the cladding itself is not dangerous and that a failure in testing does not necessarily mean that a building will have to be evacuated. The decision by Camden Council to evacuate four of the five towers on the Chalcots Estate was based upon the failed testing of the external cladding which was compounded by multiple other fire safety issues which the fire inspection team found within the buildings. As a result, whether a property damage policy is triggered will depend upon whether the tower block in question is considered to have suffered damage as a result of the use and presence of the cladding. Alternatively, do the policies contain a type of sue and labour provision providing cover for work undertaken to prevent loss in circumstances where there is the imminent threat of such damage (raising the issue of whether there is the prospect of imminent loss). If cover is triggered, then there is likely to be consideration as to whether exclusions apply including potential defective design/part exclusions. If any of the exclusions bite there will be a focus on the contractors and project managers who undertook the refurbishment work in order to find other deep pockets.
A number of entities will be looking at the cover offered by their liability policies. These will range from the Kensington Tenant Management Organisation (who managed the Grenfell Tower on behalf of the local government, who are stated in the press to have allegedly ignored fire safety concerns raised by residents and experts as early as 2004) and those involved in the refurbishment works, the supply of the product, the design of the works, and the manufacture of the materials. How the policies respond will depend upon the breadth of the insurance cover purchased, and the nature of the claims/liability. If there is evidence that there was an awareness (or the parties should have been aware) of the dangers caused by the utilisation of the cladding, or the unreliability of the in-built fire safety mechanisms, but these parties nevertheless went ahead with the use of such material or design, or continued with the state of affairs knowing them to be potentially dangerous, such conduct moves into the realms of reckless/wilful behaviour which is often excluded in liability policies. Non-disclosure issues also come to the fore in such scenarios. If there is cover, where multiple claims are expected there might also be aggregation issues.
A number of investigations are on-going and Communities Secretary, Sajid Javid also announced a new independent expert panel to advise on future safety measures; there is a separate independent public enquiry to investigate the cause of the fire and responsibility. It is likely that entities and individuals involved in providing evidence to the investigation will seek legal advice prior to appearing or giving evidence. However, liability policies often exclude such legal costs and criminal liability and/or defence of criminal proceedings are generally not covered by public liability policies. Any directors or officers implicated may however obtain cover for legal representation and advice costs under directors' & officers' insurance policies. It has been reported that Scotland Yard is undertaking a criminal enquiry, which is likely to involve corporate manslaughter issues. The Corporate Manslaughter and Corporate Homicide Act 2007 focuses on organisations, where serious failures in the management of health and safety result in a fatality. Prosecutions will be of the corporate body and not individuals, but the liability of directors, board members or other individuals under health and safety law or general criminal law, will be unaffected.
As mentioned above, where it is considered that directors and senior management in organisations were aware of failures in health and safety that have led to fatalities, there is the prospect of criminal prosecutions against them. In the media, focus has been on the management company of the Grenfell Tower. It has been reported and is important to note that combustible cladding was used, even after the 16 inspections made by Kensington and Chelsea Council, during the refurbishment of Grenfell Tower. Questions are now being asked as to the competence of a number of parties involved.
Directors' & officers' insurance usually provides an indemnity for legal costs of formal investigations and criminal prosecutions, unless or until there has been an admission of liability/guilt or a finding of such by a court or tribunal. The directors and officers covered by such policies can expect their legal representation and advice costs to be covered by insurance. Investigation costs cover is often sub limited, and in our experience, companies historically have not bought sufficient limits of such cover, not seeing the value in buying significant limits. Investigations and representation in criminal proceedings or tribunals can be expensive. Directors and officers involved will want to ensure that they have sufficient legal representation to advise them and if necessary acting in their defence.
The scope of litigation is not limited to the UK or UK entities. A number of US law firms are looking into shareholder claims. The New York based manufacturer of the building's cladding announced it is halting sales of the product. The manufacturer of the exterior panelling being blamed for the fire's ferocity, has taken the decision to no longer provide this product in any highrise developments. It did supply one of its products to a fabricator who used the product as a component in the overall cladding system used on Grenfell Tower. Other parts of the cladding system, including the insulation, were supplied by other parties. Investigations will need to establish whether a particular component was faulty or an accelerator of the fire, or whether the fabricator’s incorporation of various components was the decisive element in the cladding’s lack of resistance to fire. As a result any litigation would not be straightforward.
Protector Forsikring expects that its Munich Re led reinsurance programme will pick up the entire cost of their risk reinsured. As to whether this is the case, will depend upon what, if any, coverage issues are taken at the insurance level.
We have a significant amount of experience in handling claims made following events of this magnitude and advising clients on navigating their way through investigations, as well as defending clients should they become involved in legal proceedings. It is not unusual for coverage disputes to arise and we regularly advise on such reinsurance and insurance issues. Whilst ultimately the legal and coverage issues are paramount, how the claims proceed and how far they get (and the costs involved) depend upon the strategy adopted. What is certain is that there will be a considerable amount of litigation involving the issues surrounding the Grenfell Tower fire and the broader issues highlighted.