Recovering interim fire safety costs under the NHBC’s Buildmark policy
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The Financial Ombudsman Service (FOS) has recently upheld a complaint made in relation to the National House Building Council’s (NHBC) Buildmark Policy. The complaint was brought by a couple owning an apartment in a block which had a Buildmark insurance policy. The NHBC had provided the building control service and had accepted that, as there had been a breach of building regulations in respect of the external wall constructions, they would, in conjunction with the original builder, undertake the required works to the external walls. There had been already been a related First-tier Tribunal (Property Chamber) decision which found that the leaseholders were responsible under the terms of their leases for the freeholder’s interim safety measure costs. The reason for the complaint to the Ombudsman was that the NHBC had denied that they were also liable under the policy to cover the interim costs, such as the installation of the fire alarm and waking watch costs. In outline, the Ombudsman found that the NHBC’s liability under the Buildmark policy covered not only the remediation costs, but also interim costs, incurred from the date that the NHBC claim was made. The Ombudsman accepted that if the interim measures had not been implemented, the Fire and Rescue Service would have served an enforcement notice requiring evacuation. In addition to these costs, the Ombudsman awarded £200 to the couple who had brought the complaint in respect of the inconvenience caused by having to pursue the complaint.
Earlier posts, co-authored with Professor James Davey, explain the NHBC Buildmark policy. The first post sets out how the Buildmark policy works, in particular the cover provided for major structural defects in years 2-10 of the policy. As explained there, the extended warranty cover during years 2-10 for non-compliance with building regulations is only available if 'building control' (that is, inspection for Building Regulations purposes) was provided by NHBC Building Control Services Ltd (a wholly owned subsidiary of the NHBC) or by another company registered with them. This has been a reason given for many NHBC claims being denied, and in the second post we discussed ways in which flat owners might seek to challenge a refusal based solely on this ‘NHBC Inspector requirement’. The posts also explain that, as an insurance contract, the policy comes within the review of the FOS. The rules of the Financial Conduct Authority state that an insurer must not unreasonably reject a claim and that, when a complaint is made to the FOS, it is to be determined by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case.
Returning to the recently upheld FOS complaint, the NHBC presented various reasons why they did not think that they were liable under the policy for the interim fire safety costs. It was argued that under the policy they were only expressly liable to cover costs for ‘work done to meet the Building Regulations’, and connected with moving into alternative accommodation whilst the work was done. The Ombudsman did not agree with this. Although the policy did not expressly state that the costs of interim safety measures were covered, he noted that where the policy expressly excluded coverage for certain matters, it did not refer to interim safety measures. Importantly he held that: ‘…in the absence of a clear policy exclusion, I remain of the view NHBC is responsible for the cost of keeping the building and its occupants safe until it’s met its liability. It should be noted that, even if such an exclusion existed, it would still need to be applied fairly.’
Throughout the decision it is clear that the idea of interpreting the contract in a manner that is ‘fair and reasonable’ is key. The Ombudsman stated: ‘I don’t consider it reasonable for NHBC to artificially separate the interim safety measures from the overall work that’s required to put right the breached building regulations. I don’t find them to be distinctly separate things. The section 4 wording asserts that NHBC will protect the policyholder if certain building regulations were breached by the builder. In the context of the cover being provided, I’m satisfied it’s only reasonable to interpret that statement to mean NHBC will protect the policyholder against any immediate risks and costs associated to the breach.’ This construction is aided by the fact that the policy would cover the costs of alternative accommodation as the decision notes that money spent on the interim measures was a ‘considerable saving on providing alternative accommodation’. The idea that it is reasonable to see interim costs falling within the general umbrella of remediation is also reflected in the Building Safety Act 2022: where leaseholders costs are capped under Schedule 8, the permitted maximum takes account of costs incurred ‘for the purpose of…preventing a risk from materialising’ (i.e. the interim safety measures).
This will be an important decision for those with NHBC Buildmark policies that have the same wording and where NHBC accept responsibility for remediation. The costs of waking watch patrols are significant. There are many stories of individual leaseholders having to pay several hundred pounds each month just for this. A survey by Leasehold Knowledge Partnership in 2020 found that only around one quarter of respondents were paying less than £249 per flat per month. The government’s data, collected between June-September 2020 reports a mean monthly cost per dwelling in London of £499, and in the rest of England £179. And recent twitter reports one instance where the costs were more than £2,300 per month. This is so even though there has not been any evidence produced as to their effectiveness and, indeed, Fleur Anderson, MP for Putney, reports leaseholders in her constituency referring to them as ‘sleeping watch’.
For many, however, the decision will not be of assistance. The particular Buildmark policy may have different wording: as the Ombudsman points out this is a decision that relates to the particular complaint bought. Care needs to be taken in applying the decision more generally, not least because the wording of the Buildmark policy changes frequently and so it is crucial to determine under which particular policy a claim is being brought. This complaint relates to the policy applying to new homes registered with NHBC from 1 April 2015 (NB there will be later versions with different wording, but it is not possible to track the different policies on the NHBC website). In addition, many claims may be out of time, or met by the argument that NHBC did not carry out the building control inspection; for this group it is the arguments covered in the earlier posts that may be useful. Nonetheless, the approach of the Ombudsman illustrates a ‘pro-consumer’ construction of the policy wording as he seeks to reach a decision that is ‘fair and reasonable’.
How to cite this blogpost (Harvard style):
Bright, S. (2022). Recovering interim fire safety costs under the NHBC’s Buildmark policy. Available at: https://www.law.ox.ac.uk/housing-after-grenfell/blog/2022/05/recovering-interim-fire-safety-costs-under-nhbcs-buildmark (Accessed [date])