When extensive renovations are carried out on properties fire poses a risk. Rachel Gordon investigates what insurers are doing to mitigate this happening.
Historic buildings invariably provide enticing facades and suitably converted, can provide the modern space required for a variety of uses such as galleries and retail. But, when extensive renovations are carried out on old properties there is risk and this year, two major fires have shown this as the catalyst for severe damage and huge insurance claims.
The first fire occurred in June when Glasgow’s iconic Mackintosh Building – part of the city’s School of Art – was subject to a devastating fire – this was for the second time as it was also extensively damaged in 2014.
This earlier fire was caused by a projector igniting some expanding foam used by a student for an exhibit – the fire accelerated through heating ducts that were not fire-stopped. These same ducts were also not blocked for the latest fire as they were left open for cabling and pipes to go through them, but as yet no cause has been decided and investigators have only just gained access. It is understood Travelers Syndicate 5000 at Lloyd’s is the lead insurer as it provided cover for Kier Group, which was contractor for the restoration project.
Meanwhile in August, the front section of Belfast’s Primark store was destroyed by fire. The shop was housed in The Bank Buildings, which was being refurbished and extended as part of a £30m project. Although the insurer has not been revealed, the store’s owner Associated British Foods, said the replacement costs for the listed sandstone building and resulting business interruption would be met by insurance.
The right cover
Cases like this highlight how important it is for businesses to have the right amount of cover when renovating. Insurers must also navigate their way through these incidents when there can often be much uncertainty in terms of causation.
It many cases, a joint names policy may be taken out, to involve the contractor and employer and possibly also involving other parties such as funders.
Tilden Watson, head of education for Zurich Municipal, comments: “While joint name policies can have benefits for both parties, they also have important implications for how potential negligence claims are handled, in particular, the insurer’s ability to recover damages from a negligent contractor that is named jointly. If offered a contract that includes reference to joint names, it is important to seek legal advice to understand the implications concerning rights of recovery and insurance arrangements prior to any agreement being reached.”
There is a key role for brokers and insurance will typically cover the cost of unforeseen loss or damage to a building, business interruption, public liability and tools and plant risks and engineering insurance may also be appropriate.
Most experts say that brokers will generally do a solid job when it comes to arranging cover for large clients, whether contractors or property owners. It is small firms caught up by the impact of a neighbouring fire and that tend to lose out most since they could well have insufficient business interruption cover and, if they only have one premises, then they have less of a financial cushion since earnings could dry up entirely.
Mike Ledgerton, head of major loss at Questgates, comments: “These large fires have shown the impact that can be experienced when there is a cordoned off area. While other businesses could have no damage, they may be unable to trade and the 12 months’ BI cover they could have as standard will rarely be enough – 24 months is likely to be more realistic.”
In the Belfast case the local authority has stepped in to help with finding temporary alternative locations and to advise on how trading can continue.
For the main insured client, claims require a high level of expertise in determining whether it should be paid or repudiated and the use of adjusters that understands the ins and outs of construction contracts – the services of forensic specialists is also likely to be required.
These claims are often difficult – high levels of technical knowledge are required and they take considerable resolve.
Mark Pierce, head of adjusting and technical services for adjusters Davies, comments: “In these large claims, no contact is going to be the same and there are also going to be policy warranties. There can be a lot of contractors working on a project and the work may not always have been monitored. There are also often conflicts and if something has gone wrong, then the adjuster could find there is finger-pointing, as no one firm is likely to want to admit they are at fault. But, we need to see if we can find the root cause and in some cases also work on making recoveries from other parties.”
According to a British Damage Management Association spokesperson: “The BI policy is commonly the first to be dealt with, as the breakdown of ongoing business is often a far bigger problem due to loss of earnings, compared to the property damage itself. An overview of the business’ size of operation, production, customer profiles in relation to overall business operation, and the cost of business operation, would all be evaluated to assess the potential insurer pay-outs.” It states that gaps in cover only generally occur if it is not clear what has caused the fire and who is liable.
Finding this out is often down to specialist investigations conducted by the fire service or an expert appointed by the insurer such as IFIC Forensics. Senior investigator, Deon Webber, comments: “The right evidence can mean a claim is repudiated and a thorough early investigation should show if a fire has been started deliberately, for example – we take a thorough approach looking at every aspect including any motive.”
He explains there needs to be a team approach where possible and gathering evidence has to be meticulous. Work is helped if there are detailed images and descriptions of the property in its pre-loss state, which is something brokers may
But, experience also matters: “You develop awareness of where things may have gone wrong, such as if there have been moves to cut corners. You also pick up quickly how well run a construction site is, so that means having someone on the gate making proper checks on who is coming in and out, and overall, taking risk management seriously.”
He says causation can range from arson to a faulty light fitting to a dodgy mobile phone charger, but one which is often in the running when it is a renovation project, is whether hot works were involved. This has been mooted as a possible cause in both the Glasgow and Belfast fires.
Hot works relate to any task carried out using open flames or the application of heat and friction, such as soldering, grinding, welding, riveting and heat applied to roof coverings and the use of bitumen boilers. These activities are particularly likely to be used when there is renovation work taking place and clearly, when there are sparks and ignition, the risk of fire rises. Webber says: “It’s a major cause and there can be additional problems where you have many contractors and sub-contractors and where potentially faulty equipment is used.”
Meanwhile, according to Zurich’s claims data, hot works are responsible for 10% to 15% of all fires in commercial and industrial properties.
Sprinklers to the rescue
Mike Ledgerton, head of major loss at Questgates, points out that an effective sprinkler system has proved time and again to stop the spread of fire and if this is out of action, then this can significantly increase risk. There remain questions as to whether sprinklers worked when the Belfast fire occurred and there have also been reports that “cages of clothes” were a further hazard. Meanwhile, in the Glasgow fire, it was said that this was not in operation although pumps for a sprinkler system were delivered just days before the fire took place. Gary Howe, senior fire protection engineer for Zurich, says: “Buildings under refurbishment are often provided with temporary automatic detection, which can only raise an alert that there is a fire without any fire stopping functionality.
“Too often existing sprinkler protection is simply drained down and removed from construction sites or buildings under refurbishment to eliminate the risk of sprinkler leakage by the construction workers. While this is well intended, it has the consequence of eliminating a key form of fire protection to the building leaving building vulnerable to fire.”
He explains “a well thought out and executed coordination plan should be put in place at the start of the construction project to preserve the life, safety and property protection benefits of retaining the sprinklers for as long as possible”. He adds: Simple actions can be highly effective such as only decommissioning and removing sprinklers on a floor-by-floor basis leaving as much protection in place for as long as possible. Each floor can be individually isolated by a control valve leaving the floors not being worked on protected and floors where construction works are taking place. The sprinklers can be drained down on a floor by floor basis to facilitate essential construction works.”
Watson says: “Developing and implementing a written hot work permit programme is an essential component of effective facility risk management. Whether they are being undertaken by the insured’s own staff or external contractors, hot works should always be authorised, monitored and documented.
“Most property insurance policies will include specific terms requiring the use of a written hot work permit programme. Having this in place, and periodically checking for compliance, will help ensure meeting the legal, regulatory and insurance requirements that accompany hot works.”
Risk management is crucial to the provision of insurance for major projects and Andrew Miller, risk control manager for Allianz Insurance, says: “It needs to be seen dynamically. In large projects, the construction site is ever changing and so insurers need to be talking to clients at the start and as the work continues.”
He agrees that hot works can present high risks and says insurers need understanding of the mitigation strategies that are in place, such as doing this work off site to reduce risks. He adds: “I don’t think these two major fires are an indication that there are any new problems – overall, fire claims have come down. But, it’s always essential to guard against complacency and time or cost pressures that increase risks.”
He says there are invariably ways to reduce risk, such as disabling only part of a sprinkler system or increasing fire watch patrols. “There should also be clear rules on not allowing smoking and on the use of flammable materials and where these are stored, as well as having CCTV – even having more extinguishers could make a difference.”
When it comes to buildings like galleries being renovated, the BDMA spokesperson adds: “Given the heightened risks during these periods, it’s vital to consider whether collections should be moved offsite for their own protection. Our understanding is that most objects relocated or restored after the first fire at Glasgow School of Art had not yet moved back in, as construction works were not yet complete. So, it’s some comfort to know that they were protected although obviously the structural damage is significant.
“Many clients in the heritage sector undergoing major refurbishment projects are also reviewing the effectiveness of their emergency plans so that should an incident occur, they are as well positioned as possible to respond effectively and mitigate damage.”
Rob Aston, senior underwriter with managing general agent Ensurance UK, says the highest levels of professional training, preparation, ongoing support and overall management systems should be employed to ensure the site works are completed “without raising the inherent fire risk during the time they are on site, or their contracted works are otherwise not signed off and responsibility passed to other parties”.
He adds: “To show this approach is adopted, a traditional method is to marry company activities against recognised third party standards such as ISO 9000. For more specific fire related third-party standards, contractors should adhere to the code of practice known informally as the Joint Code.”
He explains this covers a range of core topics such as “design phase considerations and into construction phase aspects such as liaison with emergency services, security against the risk of arson, on-site electrics and flammables, storage and even the risks posed by high rise construction.”
The Joint Code of Practice on the Protection from Fire of Construction Sites and Buildings Undergoing Renovation is produced by the Association of British Insurers, Chief Fire Officers Association, London Fire Brigade and Contractors Legal Group, and Miller says its existence has proved beneficial – it is updated every few years (most recently in 2015) and is available from the Fire Protection Association.
Following these two major fires, insurers will be seeking to promote a renewed emphasis on fire prevention, even if there are unlikely to be any changes to the core insurance policy. We may, however, see greater evidence gathering before cover is incepted in terms of what renovation work is being carried out, what materials are involved and where hot works will be conducted. They will also no doubt be some valuable learning as more evidence materialises.
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