Home The Party Wall etc Act and Insurance

The Party Wall etc Act and Insurance

Insurance is relevant to the functioning of the Act
  1. under Section 12 (Security) and where
  2. damage has been caused to the Adjoining Owner’s property and is the subject of an insurance claim and
  3. an Insurance Company is paying for the work eg underpinning.

Section 12

With a view to avoiding funding security for expenses Surveyors should consider advising their appointing owners to effect insurance against the assessed risks and
before seeking security an Adjoining Owner’s Surveyor should consider the scope of insurance cover relative to the Building Owner’s desire to carry out work.

Careful consideration needs to be given to potential risks which could result from works being undertaken which may affect an adjoining property. In most instances, standard Public Liability cover will be adequate however there will be occasions where additional insurance would be prudent, a good example of this being basement excavations. Standard Public Liability cover will not insure risks identified under JCT Clauses 21.2.1 / 6.5.1 such as removal of support, therefore it is vital that the Project Manager/Architect/Surveyor ensures that the Contractor who is to undertake excavation work has arranged for their Public Liability insurance to be extended to insure these “non negligent” risks. In all cases written evidence should be obtained.

Generally, this type of cover has to be effected on a project specific basis with the premium being based upon the nature of the work undertaken and the methodology. There will be some contractors who have a full annual insurance for this type of risk, however they are the exception rather than the rule.

The insurance option is in most cases preferable to funds being held in an ESCROW account, substantial damage caused to an adjoining property caused by a basement excavation could run in to hundreds of thousands of pounds to rectify and the Property Owner may not have adequate funds to deposit to cover this scenario.

Bear in mind that building insurance policies vary widely and not all will cover building collapse resulting from removal of support in an adjoining property, leaving the affected owner(s) uninsured unless there is the option to pursue the contractor’s Public Liability insurance.

Perhaps resulting from a claim, where the work is to be funded by Insurers they will not necessarily be responsible for meeting the cost of any damage caused to the Adjoining Owner’s property during the course of the funded work.

Once the limit of a Building Owner’s policy has been reached there is no further liability on the Insurance Company to pay. The Surveyor should thereforebe aware of the building sum insured
  1. obtain confirmation ( this may either from the insurer or Loss Adjuster acting on their behalf) that the claim is covered under the policy wording
  2. obtain confirmation that the sum insured is adequate.

If the answer to (b) is no then the building insurer will have no further involvement.  If the answer is yes then as long as the building sum insured is adequate the repair costs to the owner’s building will be covered albeit subject to whatever policy excess may apply. Even if the building sum insured is not adequate, insurers may still pay a proportion of the claim subject to the policy condition of Average, whereby a claim payment is only made in the proportion that the sum insured bears to the property insured. As a simple example if a property is only insured for half of it’s rebuilding cost, the insurers will only pay half of the claim.

Damage to Adjoining Owner’s Property

The Surveyor should, at an early stage of negotiation with the Loss Adjuster, seek agreement that the Insurance Company or Companies will pay for any damage which falls within the scope of the Act to the Adjoining Owner’s building. 

As a general rule, subject to them being found liable, most Building Owner’s or Tenant’s Public Liability insurance policies will cover them for damage to third party property (e.g. on the other side of the party wall) caused as a result of normal upkeep or maintenance works being carried out by the owner/tenant at the property.  If the damage is caused by a Contractor then it is normal for the claim to be re-directed to the Contractor’s insurance who would be expected to have Public Liability insurance to cover the cost of repairing damage to a third party property caused by the them during the course of their work. 

It should be remembered that Contractor’s liability policies may have Exclusions such as the policy excess, damage caused by incorrect design, use of heat etc which may prevent the Contractor’s insurers dealing with part or all of the claim.

Where a Contractor has not been negligent, standard Public Liability insurance will not operate and consequently not cover the costs of any repair work. Prior to any works being undertaken, Surveyors should therefore consider advising the Building Owner or Tenant to arrange with the Contractor for an insurance policy covering loss of or damage to adjoining property caused by collapse, subsidence, vibration, or removal of support, etc (see JCT forms). This cover is most usually placed as an extension to the Contractor’s Public Liability cover.

Building Work Funded by Insurers

In small work it is common for the Insurers to take total control of remedial work and the service of notices and the appointment of a Surveyor under the Act. 

Conflicts can arise where work is funded by Insurers about
the roles to be played and the duties of a Party Wall Surveyor and
any difference between sums payable to the Adjoining Owner or occupier under an Award and the amount that the Insurance Company is willing to pay the Building Owner. 

It is suggested that in order to avoid conflicts of interest a Surveyor should not accept  an appointment as an Agreed Surveyor where involved in dealing with the funding of a project under an insurance policy.  In particular it is difficult to be impartial when a Building Owner is effectively the insurer.  It would be unwise to be in a position where an Award is made against a Building Owner which causes an argument between the Building Owner and the Insurer (represented by a Loss Adjuster who then has to resolve the dispute caused by the Agreed Surveyor.) 

It is further suggested that where a Building Owner is effectively disenfranchised by their Insurance Company then the Surveyor should seek an indemnity for the policyholder from the Insurer to meet any obligations on the Building Owner under the provision of the Party Wall etc Act regardless of any fault. 

It is good practice for a Party Wall Surveyor to set out the provisions of the Act to the Building Owner, copied to the Loss Adjuster, so that the duties and liabilities of the parties are clearly understood.  The parties must be made aware that a Party Wall Surveyor acts independently and may therefore be making decisions that are unpopular, often without their approval or even consultation. 

Under the provisions of Section 7 (1) a Building Owner must neither commit nor cause unnecessary inconvenience to an Adjoining Owner or Adjoining Occupier. If that were to happen or any loss or damage caused by work executed in pursuance of the Act, the Surveyors are obliged to reach agreement on the level of any compensation to be paid. 

Building insurance policies normally relate to the cost of building work and thus may exclude the provisions found in Section 7 of the Act.  This does not absolve a Party Wall Surveyor from making an appropriate Award and in respect of insurance payments awarded under this Section they are in reality part of the works, without which the work could not be carried out.  A point to watch is that there could be a shortfall between sums awarded and the amount claimable by the Building Owner.

Despite being entirely independent of Insurers it is important that Surveyors should maintain close contract with the Loss Adjuster when making an Award, however, under no circumstances should Surveyors refer drafts of their Award to a Loss Adjuster for approval before service.  This is a clear indication of bias and undue influence. 

Where a party wall has to be underpinned due to a defect eg subsidence, a Building Owner can recover half the cost of the work from the Adjoining Owner under Section 11 (14).  In these circumstances it is likely that the Adjoining Owner will make a claim on their insurance policy in which case disputes could arise over whether the remedial work is really necessary or the extent of it.  Serious difficulties can arise where the Adjoining Owner is uninsured. 

Adjoining Owner’s Property Damaged

Where damage is occasioned to an Adjoining Owner’s premises during work on the Building Owner’s property and an Award is in place, the Surveyors have a duty to determine any dispute arising out of a claim and to award compensation under Clause 7 (2).  Any pressure brought to bear upon the Surveyors by their appointing owners or their Insurance Company to prevent the service of an Award should be strongly resisted.  However, Surveyors can legitimately take advice from the Loss Adjuster on matters such as what constitutes legal liability and on the appropriate way to calculate compensation.

If an insurer, for whatever reason, declines a claim, they will not provide any sort of indemnity to the policy holder and therefore the policy holder personally will have to fund any payments due under the Act.

Keith Douglas FRICS. MCIArb
and Guy Burbedge AC11 MinstLM Executive Director of Bluefin Group.