December 2020


Litigation, legislation follow construction nightmares

by Resolve Editor Kate Tilley

The role of fire engineers, new legislation that increases compliance requirements for building industry practitioners, and the increasing cost of their PI insurance were under the microscope at an AILA webinar.

Dr Amer Magrabi, Principal Fire Engineer, Lote Consulting, said the role of fire engineers had been much debated since the VCAT 286 Lacrosse judgement. To meet National Construction Code (NCC) requirements, engineers could take either a traditional prescriptive approach or a performance-based approach.

The prescriptive approach was like following a “cook book”, but more complex buildings required more flexibility.

The NCC comprises the Building Code of Australia and the Plumbing Code of Australia. While the building code mandated non-combustible products, Dr Magrabi said that was “not always practical”. Product bans in some states were “problematic” for existing buildings.

Dr Magrabi said fire engineers’ objectives were to ensure people could leave a building safely, ensure access for fire and rescue teams, prevent a fire spreading, and avoid damage to adjacent buildings.

Fire engineers were traditionally reactive, “11th-hour fixers”, but the role had now developed into a more holistic one with increased use of performance-based design. Fire safety experts had to interpret the NCC and needed increased technical competence because greater rigour was being imposed by regulatory authorities.

More risk was being transferred to fire engineers and more issues were “being tossed into their basket to address”.

Changes to fire safety practices were driven by government reactions to a raft of incidents.

After a Quakers Hill, NSW, arson-related nursing home fire in 2011, sprinklers became mandatory for nursing homes.

After a Bankstown, NSW, Euro Terrace fire in 2012, sprinklers were made mandatory in residential buildings four storeys and higher.

The 2014 Lacrosse Apartments cladding fire had massive impact on fire engineers after the VCAT 286 judgement found the fire engineer 39% liable ($33,000 in fees), the architect 25% liable ($2.6 million in fees) and the building surveyor 33% liable ($100,000 in fees).

There was no apportionment to the builder, despite their fee being $96 million.

Another blaze that impacted on fire engineers’ responsibilities was the fatal Grenfell Tower fire in the United Kingdom in 2017.

That blaze, coupled with Lacrosse and other cladding-related fires around the globe, brought an intense focus on wall cladding.

On 4 August 2020, an NCAT Appeal Panel upheld a decision that Biowood cladding was flammable and should be removed from a Sydney multi-storey building. The decision would have impact across a range of building industry professions.

Dr Magrabi said combustible cladding created multiple fires as flames spread up and around buildings and the NCC was not designed to contemplate that. Zero risk was “not practical”, particularly for existing buildings. “Perhaps the pendulum has swig too far the other way. We need to take a risk-based approach to cladding.”

Legal implications

Anthony Herron, special counsel at Kreisson Lawyers, told the AILA webinar two pieces of legislation were having major impacts in NSW.

  • The Design and Building Practitioners Act 2020 required registration for all industry practitioners; compliance declarations about their work; and “adequate and appropriate” insurance.
  • The Building and Development Certifiers Act and Regulation 2020.

The legislation was prompted by 22 recommendations from a 30 April 2020 NSW Public Accountability Report that, among other things, supported mandatory inspections two years after design and construction, and a strata commissioner within the Building Commission to oversee.

Mr Herron said the fatal 2017 Grenfell Tower fire (above) was a major development that generated a chain of state and territory government responses, including:

  • The Shergold-Weir report in 2018 recommended new compliance requirements, many of which have subsequently been taken up by state regulators
  • NSW banned aluminium composite panel cladding with more than 30% polyethylene
  • The NSW Design and Building Practitioners Act (above) extended the duty of care to those responsible for preparing designs, manufacturing and supplying building products, and those with control over building works. The duty is owed retrospectively if defects pre-date the Act, there is no cap on damages for economic loss, and the duty can’t be contracted out or delegate.

Mr Herron said ramifications of the Act included an increase in the number of parties who owed a duty and against whom property owners could claim for defective construction and products. Potential defendants would include manufacturers, suppliers, design practitioners, fire engineers, architects and surveyors.

The Act implemented longer limitation periods – eight years for minor defects and 10 years from the date on which defects became known or “reasonably known”. Sometimes defect took years to become evident.

The registration of practitioners would be effective from 1 July 2021 and they must have “adequate” PI insurance in place.

Insurance implications

Michael Giansiracusa, CEO at Whitbread Insurance Brokers, outlined insurance impacts. He said the building and construction sector traditionally had a limited premium pool, so insurers were not building reserves over years.

To his knowledge, the ICA and key insurance providers were not consulted when requirements for “adequate” insurance were implemented. “Some insurers will apply further exclusions to limit claims,” he warned.

There was reduced insurance capacity, with a 40% drop in the London market and less choice among carriers.

More insurers were withdrawing from the market not just in PI but other classes because of a “crisis in confidence” across the building sector.

“There is a problem with quality in construction.”

Mr Giansiracusa said the industry had see significant claims, including:

  • the Lacrosse Apartments (above)
  • the Neo200 building’s cladding fire in 2019
  • defective construction at Endeavour Cove-Patterson Lakes, including balconies falling into the lakes
  • construction defects at Sydney’s Opal and Mascot Towers
  • the NSW Light Rail project
  • multiple failures at Adelaide Hospital.

With insurers taking lower line sizes, there was increased layering across programs, which increased costs. Large limits and low deductibles were no longer available.

“With increased complexity, longer lead times are needed to place accounts.”

Other market impacts were:

  • Cladding and non-conforming building product exclusions were common
  • increased retentions and no ability to trade them off for reduced premiums
  • pricing would continue to rise.

Mr Giansiracusa said residential strata was “a major problem” with providers withdrawing capacity for some building types.

With limited markets, brokers had to access unauthorised foreign insurers and that was ‘becoming the norm”.

“It’s a hard insurance market and, to move back to a soft market, you need sustained profitability to restore insurers’ confidence in the market and get them back into the sector.

“It’s hard to manage expectations. Insurers want increased premiums and reduced cover. Insureds want the opposite. It’s hard to find the middle ground. The market is collapsing in providing capacity for the building industry.”

During the Q&A session, an industry captive was suggested. Mr Giansiracusa said “everything needs to be explored”.

“I don’t see the market changing soon.”

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