The Walk to Paradise Gardens: construction defects in residential developments in English Law
- Date: 11/03/2011
A full version of Philip Britton and Mark Fairweather's paper presented recently to the Society of Construction Law is available on BLP's 'downloads' page. "The Walk to Paradise Gardens" describes a scenario where construction defects occur in residential developments in the UK. The paper is drawn from several real cases in which the authors are providing legal advice, and discusses the remedies available to homeowners in a multi-storey residential development, including a critique of the effectiveness of NHBC's Buildmark product with reference to recent case law.
The article also considers the availability of other forms of defects protection, and describes BLP's product as "...a less narrowly drawn warranty than the NHBC Buildmark" and a "radically different competing product".
The following further comments about BLP are extracted for those not wishing to read the whole paper:
'An alternative [to the NHBC Buildmark] is now offered by insurer Allianz, through its underwriting agent BLP – called BLPSecure. This has evolved out of long-duration defects cover originally developed for social landlords on a mutual basis, which entailed building a sophisticated and constantly updated piece of construction risk analysis software, CACTUS (Computerised Audit Claims Tracking and Underwriting System) as the technical front end of an insurance offering.
'For all common construction methods, components, fittings and materials, CACTUS allows the defects risk of each aspect of a planned building to be assessed in precise detail at the design stage. This starts an audit trail which leads to inspections at key stages of the project during construction: the timing, frequency and intensity of inspections is determined by the system’s assessment of the risk, which should focus attention only where it is really needed. The same process also informs BLP’s decision whether to accept the risk for 10 or 12 years from practical completion (and on what terms); and gives effect to BLP’s obligations as agent of the underwriter. So the focus is preventative and on the building itself (not the builder) and on achieving, as far as possible, ‘zero defects, first time’.81 This also translates – as it is designed to do – into a very small number of claims; and can also be used to produce whole-life costing for a building.
'The BLP approach has some superficial similarities to Buildmark and its ‘clones’ (the main risk insured is against ‘damage’, and there is a £1000 excess), but the differences are more noteworthy:
BLP does not look to the track record of the builder via a registration system, nor does it protect against the insolvency of the builder
It does not take a buyer’s deposit as a retention from a builder/developer against possible later claims, nor a bond or indemnity from developer or builder (who is thus not tied into an all-embracing ‘defects liability period’)
- Premiums are based on the contract value of the work (the cost of basic cover will start at around 0.6% of this), not the sale value of the property
- The basic coverage is for any ‘defect in the structural works [further defined] notified to the insurers during the period of insurance which is attributable to a defect in design or workmanship or materials which was not manifest at the date of inception [of the cover – exchange of contracts for the sale or issue of the Certificate of Practical Completion (whichever is the later)]’
- A policyholder can thus have a valid claim without having to show exactly how the defect arose, provided that the defect has destroyed or physically damaged the premises or threatens to do either, such that immediate remedial measures are necessary
- The original builder has no general responsibility for remedying defects within the early years of the policy, so there is no need for the additional machinery Buildmark offers if the builder fails to do so
- The insurer will not exercise subrogation rights against the builder.
'This is therefore first party insurance in the proper sense, not a warranty, so with few exceptions the current building owner or occupier gets the cost of remedying the defect*. The standard cover is for structural defects only, but a version of the policy called BLPSecurePlus extends the cover to non-structural components (including M&E systems) in relation to residential buildings. As Sir Michael Latham said in Constructing the Team:
‘Reliable and timely restitution [for construction defects] has been shown to result only from first party material damage non-cancellable insurance. Within the terms of the policy, repairs are funded on proof of relevant damage, without proof of fault.’ (pages 25-27)
* Water ingress in the first year is not covered, so here the insured has to look to the original builder, BLP offering a ‘Negotiated Settlement Process’ with the builder on the insured’s behalf; and the insurer retains the right – seldom exercised – to do the repair work itself.