COVID-19 Update for the Construction Professions
The Covid-19 pandemic has had profound consequences for all stakeholders across the construction sector, including our professional client base and their insurers. In this COVID-19 update for the Construction Professions, we make some observations from our unique vantage point over the construction claims landscape, then comment on the latest market intelligence, and conclude with a particular perspective on timetables for renewal discussions during these most unusual of times:
Claims & Disputes
Historically insurers have reported a deterioration in claims during periods of economic slow down. The COVID-19 crisis has had immediate implications for financial markets, lending institutions and the property market in particular. A loss of profit at the top of the supply chain, whether that loss be real or anticipated, temporary or permanent, causes employers to look to their suppliers for recompense, often by way of spurious negligence claims.
When the crisis first started to disrupt our clients’ operations, the general expectation was that it would trigger claims for late delivery of design information. That now seems to be less of a threat in view of the widespread halting of work on site: claimants would now struggle to satisfy a court that any project delay was in fact caused by designers at all.
However, consultants with, for example, contract administration duties are at risk of being embroiled in disputes under the main contract if they fail to give appropriate advice or if they make contentious decisions with regard to extensions of time, compensation events and so on.
Notwithstanding that late completion may now be the new normal, our ongoing advice holds good for any projects that are in delay, namely that consultants should:
• properly record the detail and chronology behind ALL events impacting project programmes;
• openly engage with the wider project team about any potential impacts of COVID-19 on the consultant’s services/the wider project – this can help to head off disputes and create a dialogue around mitigation of any unavoidable delays;
• review their live agreements and comply as normal with any obligations regarding, for example, early warning notices;
• continue complying with contractual obligations despite site suspension/delays/closures.
The outcome of any future disputes will most likely turn on the availability and quality of evidence. Wherever possible, consultants should therefore try to keep contemporaneous records of what was (or wasn’t) happening on site during periods of disruption – notes and photographs on the file are often invaluable at a later stage.
The payment cycle
As cash flow becomes tight higher up the contractual chain, consultants can expect to face greater than usual difficulties in extracting payment of their own invoices. Any payless notices accompanied by vague and/or allegations of negligence should continue to be reported to PI insurers in the usual way.
Suspension and/or termination
As a general rule, and unless it has been otherwise agreed in writing, consultants are best advised to continue fulfilling their contractual obligations to the very letter in spite of, for example, non-payment of fees and/or temporary closure of the site.
Statutory or common law rights to suspend services or to treat the appointment as having come to an end are valuable from a commercial perspective, but the wrong decision (or even the right decision at the wrong time) can easily backfire on consultants and create or exacerbate their exposure. Every case turns on its own facts and is contract specific. Bespoke legal advice will therefore nearly always be required where consultants are considering those other options and our Legal Helpline could provide a valuable first call.
Working from home - alone and unsupervised
Perhaps the broadest risk for insurers subsists in the simple fact that design errors may be more likely to creep in (and go undetected) when staff are working from home and in an extended period of isolation from their peer group and managers.
In their detachment, and in the absence of face-to-face interaction, people are less inclined to ask questions and more likely to make assumptions when presented with ambiguous instructions or incomplete information (the risk of which may itself be heightened when access to site is difficult or impossible). It is therefore incumbent on all professionals to review their quality and checking procedures and to make sure that they work just as effectively when applied to remote working as they do to normal conditions.
Professional Indemnity Renewals
Prior to the COVID-19 pandemic, we were seeing renewals take longer to finalise than at any other point in recent memory, owing to the rapidly deteriorating PI market and increased questioning from insurers on various issues. Both of those factors are still with us today. The present situation renders the process around securing renewal terms that bit more prone to delay.
In order to try to mitigate disruption, we would recommend returning your renewal information just as soon as possible, as the process may take significantly longer than normal. This is particularly important for anyone whose current policy period exceeds 12 months – it may not be possible to extend that policy in order to facilitate renewal negotiations.
It is too soon to say what effect the pandemic will have on insurance premiums beyond the obvious point that any impact will be negative. It would seem inevitable that COVID-19 claims will occur. Once they begin to emerge, insurers will then need to consider what action needs to be taken to bolster their balance sheets.
In addition to the direct costs of COVID-19, the recessionary characteristics that are widely reported as being likely to take hold will bring with them additional headwinds for insurers, both in relation to a general trend for increased claims costs and significantly reduced investment income.
At the beginning of the year, we advised clients to prepare for rating increases throughout 2020 and into 2021. That advice hasn’t changed. For the moment, our initial assessments are that we don’t yet see COVID-19 causing significant systemic disruption to what is undoubtedly a fragile marketplace, but we continue to monitor the situation closely on an ongoing basis.
Exclusions for COVID-19
Whilst PI policies are on the periphery of the insurance market’s exposure to the pandemic, it is possible that claims will find their way through to PI insurers owing to the breadth of incidental cover offered.
That breadth has already caused some concern with individual underwriters, some of whom are insisting on including COVID-19 exclusions into their policy wordings. Whilst none of our insurance partners have insisted on such an exclusion to date, we are aware of a ‘standard’ wording in circulation within the marketplace catering for this situation.
Anyone facing such an exclusion on their policy needs to carefully consider its effect and the need for appropriate and timely notification of relevant circumstances in the normal way. We will continue to keep a watching brief on this developing area.
The foregoing is a summary of some of the most frequently asked questions that the Griffiths & Armour team have addressed as we collectively trade through what are truly unprecedented times; we appreciate that there have been many communications on this subject, and we hope that our insight is appropriately objective and helpful.
We would also like to put on record the excellent support that we have received from clients, insurers and strategic partners alike. We continue to operate and trade effectively, from our home working locations, and remain fully operational and deployed in support of our clients needs.
Take care and stay safe.