Cladding and non-compliant products – Covering yourself
Important information for professionals in the building industry
If you are a Professional operating in the Building Industry and have been:
caught up in the Victorian Building Authority Audit
involved in recommending non-compliant cladding or other products
recommending products that meet Australian Standards but are used for inappropriate purpose such as polystyrene instead of concrete
then you urgently need to notify your Professional Indemnity Insurer!
Why? In case you are joined in an action by building owners for recommending unsuitable products.
Notify as soon as you become aware of a circumstance – Professional Indemnity policies are on a ‘claims made’ basis, so you must notify the circumstance during the current period for cover to be afforded.
The insurer may be prejudiced if the claim escalates and they are not able to be involved at the early stages to mitigate loss.
Aside from notifying claims circumstances – Under your policy, advise any material change in your business activities, for example if you are an architect that then decides to take on Project Management work, your Insurance policy will need to be amended accordingly to provide cover for your new activities
Read the full story
Closer ties with our neighbours, cheaper prices and ease of transportation means that we import many building supplies however not all products comply with Australian standards and this has become an issue in Australia. Reports suggest that products that don’t confirm to Australian standards and used in construction markets may be up to half of products sold.
When tested some of these products have failed basic assessments. The November 2014 fire at the Lacrosse Apartments in Docklands in Melbourne sparked investigations by authorities. The Victorian Building Authority contacted builders and building surveyors of 170 building permits relating to building of high rise in inner Melbourne asking them to provide evidence that the external cladding used complied with the National Construction code. The external aluminum cladding at the Lacrosse Building was deemed to be inappropriate. The Metropolitan Fire Brigade found that the cladding contributed to the rapid fire spread and did not comply with the National Construction Code. This raised issues for various professionals who were recommending or advising on the use of various products. The fire at the Torch Tower in Dubai and the fatalities arising out of the Grenfell tower tragedy in London has set off further alarm bells here in Australia.
The inappropriate cladding used on the Lacrosse building was imported from China and is highly combustible. The brand used in this instance was Alucobest, but there are a number of different brands. On the outside, it is aluminium, on the inside, it is a polyethylene, or plastic, fibre (PE core). Alucobest cladding complied with Australian standard tests for ignitability, spread of flame, heat and smoke, but it did not pass the test for combustibility back in 2010 when the building was commissioned.
The cladding that should be used is called Alucobond. Aluminium on the outside, but the inside has a mineral fibre core. The problem is that to the naked eye, you would not know the difference and this is one of the issues that arises for building surveyors who can be inspecting construction progress.
If you are a professional related to the Building Industry and have been caught up in the Victorian Building Authority Audit and have been involved in recommending non-compliant cladding or other products such as overseas electrical cables or glass paneling or recommending products that meet Australian Standards but are used for inappropriate purpose such as polystyrene instead of concrete, you will need to notify your Professional Indemnity Insurer of a circumstance in case you are joined in an action by building owners for recommending unsuitable products. Of particular concern is if the building requires remedial action due to being declared non-compliant. Some buildings have been found to be safe for occupation, whilst others require further action. The VBA determine the further action and some could face disciplinary action or prosecution. It is expected that the on-going Federal Senate Inquiry will also bring about changes to building codes, national licencing and regulatory enforcement so that some change is brought about at the outset before the products are used.
Effect on your Insurance
Professional Indemnity policies operate on a claims made basis, therefore it is important to notify as soon as you become aware of a circumstance. Whether they eventuate or not, it is important to notify all potential circumstances to your Insurer during the current period in order that cover is afforded. This point cannot be stressed enough in order to meet the conditions of the ‘claims made and notified’ basis of coverage, further the insurer may be prejudiced if the claim escalates and they are not able to be involved at the early stages to mitigate loss. Likewise, it is important to notify any material change in your business activities, for example if you are an architect that then decides to take on Project Management work, your Insurance policy will need to be amended accordingly.
Depending on your particular Professional indemnity Insurance policy wording, defence costs and advancement of defence costs may be of assistance to you in defending an allegation of this nature. Professional Indemnity Insurance policies also often have coverage for sub-limited fines and penalties cover and Sub-limited Inquiry costs for representation of at a regulatory inquiry or proceeding.
If your policy is coming up for renewal shortly, be aware that Insurers may try to impose different endorsements to exclude liability relevant to non-compliant or non-conforming products. If this is the case, take it up with your Insurance Broker as not all Insurers are imposing exclusions and if they are, some may be more onerous than others. A blanket exclusion relating to non-confirming products could be detrimental to your business in the event of a relevant claim and it is important that your policy is able to respond as far as possible.
Considerations of your work practices within your occupation
For any building related occupation it is essential to define and document your role at the outset. If you are responsible for product selection and compliance consider the checks and procedures you have in place to ensure the building is constructed in accordance with plans and products specified.
Importantly – If you are a Building Surveyor, Building Inspector, Quantity Surveyor and suspect inferior materials have been used on site it is important to ask questions, if concerned investigate further, speak to builders and ask to see product samples and certificate of products used before you sign off approval or issue permits.
If you are an Architects, Engineers, Draftspersons, Project Manager it is important to only recommend building products that meet the National Construction Code, in the case of the cladding, the non-compliant materials, did not pass the combustibility test. When cladding or other products are non-compliant, it is important to find out whether the material used was specified for that purpose, or if a practitioner on site substituted it for the intended product, or if the surveyor incorrectly signed it off as compliant.
This advice and comments are provided in the capacity as your insurance broker and should not be construed as legal advice. Separate legal advice relating to the interpretation and implication of this article for your individual circumstances should be obtained.