Inappropriate specification of sandwich panels
Lloyd's syndicate DA Constable could face a flood of claims from architects following a landmark case involving Norwich Union (NU) and architect Paskin Kyriakides Sands.
The syndicate is the lead underwriter for the professional indemnity cover of the Royal Institute of British Architects (Riba) Insurance Services. Brit Insurance underwrote 5% of the cover and Trenwick Group confirmed its involvement.
NU succeeded on Monday in winning the first liability judgment against negligent architects who inappropriately specified the use of combustible insulated panels (CIPs).
According to its lawyer Greenwood Solicitors, this judgment should have an impact for commercial property insurers, particularly those that insure the food industry. Greenwoods said insurers "may wish to review outstanding or past losses".
But despite a High Court ruling in favour of NU against architect Paskin Kyriakides Sands, the insurer may not see the £17m paid out to Sahib Foods in 1998 because the architects were only insured to the value of £3m, according to Brit.
Brit chief executive Dane Douetil said: "On Syndicate 386 [DA Constable], Brit had a small proportional risk. The syndicate will face a £3m loss, which has been already been budgeted."
Damages in the action remain to be assessed but could be as much as £25m.
The Sahib Foods factory went up in flames in January 1998, forcing the company into liquidiation. NU argued fire would not have gutted the factory if Paskin had not specified the use of CIPs, which can have a very high fire risk.
Paskin was refused the right to appeal.
NU head of property claims John Wycombe said: "To receive something is better than nothing, but the implications to professional indemnity insurers of architects is enormous as it has opened the doors for other insurers to question the design of buildings and take action accordingly."
Richard Houseago of Greenwood Solicitors said: "The professional indemnity market should be extremely worried about the outcome of this case, as there are many years of exposure to claims still waiting to be realised.
"Architects with long records of using this material might also want to look at their limits of indemnity under their PI covers."
DA Constable Syndicate PI underwriting director David Harries said: "This case may or may not have an impact on architect insurance rates and insurers may look at potential exposures as a result, but to say it will affect the totality of the architect market is irresponsible. We have to analyse it further."