The Building Safety Bill received Royal Assent and became an Act of Parliament on 28 April 2022. Ian Yurasek, of Aon’s Financial Services Group team briefly explores the implications for real estate investors’ Directors and Officers insurance.
The Building Safety Act has significant implications for many people involved in the construction, ownership and management of certain types of building. It will, therefore, have implications for D&O insurance policies purchased to protect the personal assets of the people concerned. One of the Act’s principal aims is to create a more effective regulatory and accountability framework to ensure that relevant buildings are designed, built and maintained to ensure the safety of people who use them, or could be affected by a safety issue.
The Act includes the creation of a new regulator and new statutory roles and duties which will render the people who fulfil these roles personally accountable, with both criminal and financial penalties for those judged to have failed in their responsibilities.
In the aftermath of the Grenfell fire, it became clear that holding individuals to account for the failures which led to the disaster was very difficult indeed. Government and regulators had encountered similar problems holding individuals in financial institutions to account after the 2008 financial meltdown and subsequently changed the legal and regulatory framework, such that it will be far easier to pursue individuals in the future. This approach is being replicated by the new Act, in order, inter alia, to create clarity of responsibility and focus the minds of designated people on key safety issues.
- New Building Safety Regulator with approval, enforcement and prosecutorial powers
- Mandatory reporting of structural and fire safety occurrences
- Sanctions of up to two years in prison and unlimited fines
- Creation of new roles and new general duties on dutyholders
- Gateway points to manage safety and risk
The headline policy in the Act is the creation of a new Building Safety Regulator, tasked with securing the safety of people “in relation to risks arising from buildings” and improving the standard of buildings. The Regulator’s powers will be wide-ranging, including the ability to publish a new Code of Conduct for building inspectors and carry out misconduct investigations, issue stop notices, levy unlimited civil fines and commence criminal prosecutions which attract prison sentences of up to two years.
How does this affect D&O policies issued to companies that operate in the real estate sector?
D&O policies are designed to respond automatically to changes in the legal and regulatory framework. What they are not designed to do, is automatically adjust the scope of cover to include a wider class of people affected by such changes, who would not otherwise be included. The new regulator will have the power to pursue directors, managers and officers of companies that have committed an offence and there will be a number of defined roles, including a Principal Accountable Person, creating new duties upon persons acting in those capacities.
D&O policies have wide definitions applying to directors and officers, and people who act in those capacities will be covered automatically. In order, however, for people acting in other defined roles, who are not directors or officers of a company, the policy will need to be amended if such persons are to be covered. Aon will draft appropriate policy language to meet this new challenge and ensure that suitable protection is provided by the D&O policies we place on behalf of our clients.
In certain circumstances, the protection that D&O policies provide overlaps with cover afforded by an organisation’s public, or property owner’s liability insurance and, if there is an overlap of coverage, it is important to review the two types of insurance to ensure that it is clear which policy is intended to respond first.
Ian Yurasek, Client Manager, Aon Financial Services Group, firstname.lastname@example.org.
The Aon Real Estate team specialises in advising on and placing property, legal indemnity, and rights of light insurance for real estate investors. Acting for 25% of the world’s largest investors, our team of sixty insurance and risk experts provide development to disposal insurance solutions for all asset classes from residential through to logistics. Using our understanding of real estate investors’ needs we work in partnership with our colleagues specialising in Directors and Officers, Construction, Mergers and Acquisitions, Surety and Health and Benefits to aim to minimise risk and deliver solutions that empower success. For advice on any aspect of your insurance programme, please contact Emma Vigus at email@example.com or firstname.lastname@example.org