RCAs on buildings with cladding

How do you value cladding in an insurance scenario? Here our RCA Director James Paul explains

Cladding systems have been under the microscope for a while now, but how exactly do you value a building that has cladding that may be deemed deleterious and dangerous?

The general principal of insurance reinstatement is that insured assets should be replaced on a like-for-like basis where possible, or with modern equivalents where it is no longer pragmatic to replace on a strictly like-for-like basis.

Insurers are no strangers to this. If a car from the early 1990s without airbags is written off in an accident, it is not replaced with a contemporary car without airbags (because you cannot get one), and even if you could it would be against statutory legislation. Instead the nearest contemporary equivalent is given. A Ford Sierra is replaced with a Ford Mondeo, and that is not considered as betterment, although as anyone who has been in this situation will doubtlessly attest, insurers will often try to pass off a lower spec model as a first offering, or attempt a keep in lieu settlement with the insured that may be financially advantageous to the insurer. That’s cash rather than a replacement equivalent car – and a lot of drivers will prefer this, even though the cash settlement is rarely enough to buy an equivalent car.

So how does all this translate to the world of building reinstatement cost assessments (RCAs)? Well buildings are always insured on a ‘keep in lieu’ basis. No buildings insurer that I am aware of actually offers to project manage the rebuilding of a like-for-like building for you should there ever be a total loss. Instead cash is offered, and your up to date RCA (which should always be less than three years old) is there to ensure that you are insured for an amount that will buy you an equivalent building on a day one basis.

I give you a scenario I came across not that long ago in 2020. I inspected a gleaming apartment block in central London. It was in a prime location, had a 24hr concierge, in-house, gym, and was eight storeys high. It had been designed by an eminent firm of architects about 10 years earlier, and had won several awards. It was also clad on one side with the very same type of aluminium composite cladding as was used on Grenfell Tower; there were also timber balconies aplenty, and several other major unanswered questions hanging over the integrity of the fire-breaks and partitions. The property managers were aware, the building was still largely occupied, and a waking watch had already been in place for several years, with a project was underway to replace the cladding in 2021 and make other remedial repairs.

So by taking a blinkered approach, a building reinstatement cost assessment should treat composite cladding, timber balconies and other such ‘deleterious’ elements in the same way as we would treat any other health and safety breach. In allowing for the building’s replacement we also allow for any statutory upgrades that may be necessary in constructing a modern equivalent. This may include: more insulation, thicker walls, non-combustible external finishes, part Q compliant security locks, and all sorts of other minor upgrades to the specification, even for a building that was only built 10 years ago.

In a way it is very much like the analogy involving the airbags. Just because an old car does not have some, that does not mean new equivalent shouldn’t. And just because a newish building would not comply to contemporary checks on fire-safety, does not mean that the declared value should not include the effect of statutory changes and changing practice.