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Building owners could find themselves without a way to claw back rectification costs, after insurer efforts to exclude liability for private certifiers over non-compliant cladding.

The Australian Institute of Building Surveyors, the peak body for Australia's privatised building certifiers, last week wrote to members warning that some professional indemnity insurers were imposing 'onerous exclusions' to policies in relation to non-compliant cladding.

"Some clauses exclude claims arising out of 'non-compliant' aluminium composite cladding whereas others exclude "non-compliant" and "non-conforming" cladding or building materials generally," the emailed letter said. "The exclusions that we have seen are broadly worded, removing all cover when non-compliant products exist irrespective of whether the insured practitioner caused or contributed to the issue."

Melbourne-based insurance broker BRIC, upon whose advice the institute sent the email, came across its first policy with an exclusion clause in February, and since June has had to find alternative insurers for 12 clients whose existing insurers had refused to remove exclusion clauses they had introduced.

It was significant risk for professionals such as building surveyors and engineers, BRIC broking manager Darren Pavic said.

"If a policy does not respond to a claim, the firm and the individual practitioner will be left to defend the matter using their own resources," Mr Pavic said.

London's Grenfell Tower tragedy, which has already prompted an out-of-cycle revision of Australia's National Construction Code, is now prompting insurers to assess their potential liability over buildings that may be clad in potentially combustible material. The number of such buildings in Australia is unknown, but was "going to be a lot", a senior Victorian fire officer told a Senate inquiry into non-conforming building products last month.
More than two years after the potentially fatal fire at the Lacrosse building in Melbourne's Docklands, cladding remains on the residential tower.
Efforts by some state governments, such as in NSW, and by developers and owners themselves to determine the safety of their cladding are likely to lead to a raft of claims over rectification costs, said Scott Higgins, a partner with law firm Mills Oakley. With developers likely to have confidential dispute resolution mechanisms that would have them resolve problems privately, bodies corporate were more likely to take certifiers to court, Mr Higgins said.

"I'd be very surprised if we didn't start to see them in the next six months," he said.

Erik Adriaantse, the interim chief executive of industry body Strata Community Australia, called news of the exclusions a "positive" development.

"It's likely to put pressure on certifiers to get it right," he said.

In its email on Friday, the institute said insurers were drafting their own definitions of "non-compliant" or "non-conforming" in a "very broad" fashion.

Mr Higgins said the move by insurers could influence the appetite of building owners to rectify them.

"If you have to rectify the issue and seek to recover the costs – which could be in the millions – by reclaiming those under insurance, if that certifying authority doesn't have an insurer standing behind them there's less comfort there that you're going to be able to recover the costs," he said.

Australian Financial Review, 8/8/2017