Insurance and the Party Wall Act
Sunday, 6th October 2019
Party Walls
It used to be common for party wall awards to include an obligation for the building owner to ‘maintain or cause contractor(s) to maintain adequate insurance against such risks and provide evidence of this upon demand by the adjoining owner’s surveyor contractor’ and this was generally interpreted as the relatively inexpensive Public Liability insurance that most reputable building contractors would have in place. Public Liability insurance protects against liabilities for injury to third parties (non-employees) or their property.
The wording above is taken from the template award in the 5th Edition of the RICS Guidance Note relating to party wall procedures. The clause was removed from the 6th Edition (we are now on the 7th Edition). The removal of the clause was intentional.
The panel (which will have included at least one legal professional) agreed that party wall surveyors do not have the authority to require a building owner to insure against something that might never happen.
Section 10(12)(c) of the act states that ‘an award may [my emphasis] determine … any other matter arising out of or incidental to the dispute including the costs of making the award’ so two surveyors could still agree to include an insurance clause but one could not force the other to do so. However, there are practical reasons why they will generally choose not to do so.
In the same way that the surveyors are expected to review drawings, method statements etc. they may be expected to review insurance policies to ensure that they are fit for purpose and surveyors are not generally experts in insurance. The award could make clear that the surveyors have not made any determination upon the adequacy of the policy and that such is the responsibility of the parties but, assuming that the adjoining owner is not an insurance expert either, you have to question how useful such a clause is.
Also, the adjoining owner will not be a party to a contractor’s Public Liability insurance policy and could not therefore be a beneficiary in respect of a claim made. It could be argued that having such a policy in place guards against the building owner being in impecunious circumstances in the event that damage arises but if that is the primary concern of the building owner they might be better requesting security for expenses (putting money in escrow).
I more recent innovation is an insurance policy that provides an alternative to escrow when security for expenses is requested. The building owner takes out a policy and if the works are abandoned or there is unrepaired damaged the adjoining owner can request a release of funds to cover the cost of making good and permanently stabilising the party wall and their property. Before any funds are released the adjoining owner will need to show that there is a party wall award in place and the appeal period has run. It’s early days for policies of this type but the benefit to the building owner of not having to put a large sum of money out of circulation is obvious.
If you have any queries relating to party wall matters, security or insurance you are welcome to call us on 020 7183 2578 to discuss or drop us an email.
