Engineering insurance and why your block needs it

Paul Robertson uncovers the background to engineering insurance and explains why your block needs it

Arguably Insurance companies have a lot to answer for in the way that so called “engineering insurance” has been sold to the public. It is an area that few appear to fully understand and I believe a lot of bad advice is given as a result.

Historically engineering insurance was sold to exploit the tax advantages. While statutory engineering inspections were subject to VAT, insurance products were not. So if an insurer combined the inspection service with a small element of insurance cover the VAT could be avoided. This loophole has long been closed but ultimately it gave insurers a significant advantage for many years which is probably why they still have such a market share in statutory inspections.

The second way that it could be argued insurers have exploited dirty tactics, is that they normally only offer the additional insurance cover if they arrange the statutory inspection. By not making this cover easily available on a stand-alone basis they have successfully given themselves a commercial advantage.

In addition, many insurers and brokers have done little to help matters by treating engineering cover as a policy extension, leaving some policyholders to consider it as an optional extra without realising the legal requirement for statutory inspection (See Flat Living issue 14 for more on this).

Having said all that, there remains a strong argument for insurers to remain involved in providing statutory inspections. The statutory requirement is that plant is inspected on a periodic basis by an independent and competent qualified person. The purpose of this is to prevent any conflict of interest and ensure safety is always put ahead of other financial considerations.

To understand how this might work let’s use the example of a phenomenon sometimes referred to as “cat flapping”. This is where a lift door is leant upon and the securing pins at the bottom break, causing it to swing open like a cat flap. Lift doors are normally suspended from a top rail with securing pins on the bottom to ensure they remain in a track - very similar in design to sliding wardrobe doors. Now imagine a situation where the lift maintenance company is a on a fixed price contract. There could be a danger that for financial reasons they do not immediately replace a part such as the worn guide pins on the bottom of a lift door. The outcome could be someone falling down a lift shaft and this is exactly why the legislation requires regular, independent inspections. In case you are wondering, this can actually happen so don’t ever lean on a lift door while waiting for the lift as you could end up falling down the shaft!

So there is very good reason for the inspection to be independent and insurers are ideally placed to provide this service along with any of the other specialist providers of statutory inspections. Whom you may choose to use is your choice but you should ensure they are independent and therefore impartial.

However, the fact remains that to select insurance cover for plant is optional (as ever subject to interpretation of your lease covenants). A common example of a claim under this cover would be the example of a broken down lift whereby the lift doors are forced open to evacuate the passengers. The block policy will normally not indemnify against any harm caused because the event that led to the damage occurring was the breakdown of the lift (referred to as proximate cause in insurance speak.) The engineering policy should respond to this event by providing cover for sudden and unforeseen damage. This is one of the most common claims we see for lifts and is a good example why this cover should be purchased.

So when considering whether to tick the ‘engineering cover’ box on your renewal form, three important things to remember are that:

  • Statutory inspection of items such as lifts, communal boilers and window cleaning cradles is not an insurance option but a statutory requirement.
  • Your statutory inspections should be conducted by an independent, suitably qualified person.
  • If your lease permits, then electing for the optional insurance cover may be a prudent buying decision. ●

Paul Robertson, Managing Director, Midway Insurance Services Ltd & 1st Sure Ltd